Yesterday’s Owl looked at three of the top five economic stories to watch in 2022, as highlighted in a special episode of ATB’s The Future Of podcast. Frances Donald, Global Chief Economist and Strategist at Manulife Investment Management joined me on the podcast and helped craft the list of stories.

Today, we round out the top five list with the two remaining economic stories to watch.

#4. Central banks taking action
With price pressures rising throughout the global economy (see #5 below), central banks will be pressed to start raising interest rates. The challenge they will encounter, however, is one of timing. It’s always a delicate balance for monetary policy: when to raise interest rates to calm inflation without acting too quickly and unintentionally pushing the economy back into recession.

The COVID-induced recession in 2020 and bounce back in 2021 were unique in many ways, and traditional central bank actions may not be as effective this time around. Still, central banks are under increasing pressure to do something. The actions they take in 2022, and the effectiveness of these actions, will be watched by economists and consumers alike.

#5. Inflation

Rounding out the top five economic stories to watch this year is a phenomenon related to all four of the other stories on our list: inflation. As measured by the Consumer Price Index, monthly inflation in Canada hit a 30-year high when it climbed to 4.8% at the end of the year. In the US, inflation hit 7% in December, the highest it’s been since 1982.

But the current bout of inflation is unique in many ways. It's not just the demand-push inflation that results from "too much money chasing too few goods" (the kind of inflation for which monetary policy is relatively well-equipped). It’s more a matter of cost-push inflation driven by impaired supply chains, crop failures due to drought, spiking energy costs and rising worker wages. Will inflation be “transitory” and work itself out in 2022? Or are we on the path to years of rising inflation like we saw in the 1970s and 1980s? Time will tell.

Answer to the previous trivia question: The federal Minister of Finance is responsible for both the Bank of Canada Act and the Currency Act.

Today’s trivia question: Which 1973 film starring Charlton Heston depicts a dystopian future of food shortages and poverty?