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Wilkins’ next job may be up in the air, but she’s got plenty to do before leaving Bank of Canada

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“We’ve made a lot of progress. The hope is that we’ll be able to collect all of that by the end of the year,” she said. “That’s really going to be putting us in good stead next year, the first part of the year, to think about recommendations.”

Wilkins’ review is the most comprehensive since the inflation target was adopted in 1991, as a wish list of alternatives is being tested against the current approach in sophisticated models. She has also made an unprecedented effort to engage the public, including an ongoing survey designed to gauge attitudes about inflation.

The work with regular folk has generated some surprises. The Bank of Canada discovered that a critical mass of people is highly skeptical of the Consumer Price Index, the central bank’s preferred measure of inflation. That matters because if people don’t have faith in what the Bank of Canada is doing, then policy probably won’t work.

“They think the price increases that they’re facing are higher than they are measured by Statistics Canada’s measurement,” Wilkins said. “Perceptions are really quite important. Da Vinci said all of our knowledge has its origins in perceptions and I think that’s true. So we need to understand, why is that?”

Policy-makers also are learning things about the labour market.

Wilkins said she has received “very important” feedback on labour markets. The assumption when the Bank of Canada embraced inflation targeting was that lower interest rates would put upward pressure on wages, and, therefore, inflation. But the workers the central bank has been talking to say that assumption is no longer valid.

“Now it takes a lot more heat in the labour market, according to them, to generate inflation,” Wilkins said. “If that’s the case, maybe we should change our models or maybe we should change how we react to what we see, if we ever see tightness in the labour market. They really put us to a challenge to think about those things (and) to see how we can integrate them into our framework.”

Wilkins might have her eye on the exit, but she’s not gone yet. Like she said, there’s a lot of work to do.

Financial Post

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