Hopeless Statistical Confusions Behind our Hollow Election

Matters have come to a pretty pass when an offi cial of the largest commercial bank in the land publicly mocks the central bank’s undying concern about infl ation. The tale is told in The Globe and Mail (01/26, “Missing in action at a mall near you: Infl ation” by Heather Scoffi eld): “The DVD player selling for $39.95 is putting the Bank of Canada in a quandary. “Prices for electronics and imported goods have been falling, and the effect is to put a damper on infl ation across the country. (The behaviour of infl ation is defying traditional expectations.) It seems steady prices are here to stay. “But the central bank dogmatically bases its monetary policy on fi ghting higher prices. While no one is saying infl ation has gone for good, its new and unpredictable ways are challenging how the Bank of Canada makes decisions. “‘There’s some debate about whether we’re at the point where infl ation starts to kick in,’ said Derek Holt, assistant chief economist at Royal Bank of Canada. “In theory, inflationary pressure rises when the economy is running at capacity. And the central bank believes the Canadian economy is at capacity right now. But signs of infl ation are spotty. The bank’s target core rate of infl ation, which factors out the most volatile items, has been running below a 2% pace for two years now. Wages are rising, but not at an alarming rate. “And while the central bank targets infl ation 12 to 18 months in the future, as opposed to the inflation rate now, there is thin evidence that there is any pressure building up.” The trouble is with our economists’ view of infl ation is not only that it is dogmatic, Continued on page 2