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Canadian companies have more than $600-billion on their balance sheets. As a percentage of gross domestic product, corporate cash has almost doubled since 2000.
Canadian companies have more than $600-billion on their balance sheets. As a percentage of gross domestic product, corporate cash has almost doubled since 2000.
(Getty Images/iStockphoto)

Have corporate cash piles been smothering inflation?

Corporate Canada’s propensity for cash hoarding may be doing more than just holding back Canada’s economic recovery. It may be behind Canada’s unusually low inflation trend, too.

In a new paper Wednesday from the C.D. Howe Institute that explores Canada’s prolonged period with below-trend inflation (it’s been two years since the core inflation measure was as high as the Bank of Canada’s 2-per-cent target), author Mati Dubrovinsky notes that the historical relationship between inflation and money supply has broken down in the post-recession period. While money supply expanded due to a monetary policy of prolonged low interest rates, this didn’t result in a rise in kind of inflation.