Canada’s narrow money supply is pointing to a big return to production and consumer spending. Bank of Canada (BoC) data shows the M1+ gross money supply reached a new all-time high in September. The measure of money supply has experienced the highest rate of growth seen in decades… in the middle of a recession… during a pandemic.
What Is Canada’s M1+?
The M1+ is a narrow measure of Canada’s money supply. Currency outside of banks, chequable deposits at chartered banks, trust and mortgage loan companies, and credit unions. To put it bluntly, it’s anything that can be spent in Canadian dollars with zero to no notice. The BoC uses this number for a lot of things, but it’s most useful for forecasting future economic productivity.
The BoC influences the growth of money indirectly, primarily by interest rate changes. Higher rates mean money is more “expensive.” This leads to less borrowing, and higher costs to service debts. Lower rates mean money is “cheap.” People borrow more, and it costs less to service debts. Changes in these measures are first seen in industries that use large financing, like homes and auto purchases.
Canada’s Money Supply Jumps Over 27%
Canada’s narrow money supply is experiencing very rapid growth. The M1+ gross reached $1.36 trillion in September, up a whopping 2% from just a month before. The 12-month rate of growth is now 27.69% higher than last year. This is the type of growth rarely seen in an advanced economy.
Canada M1+ (Gross) Money SupplyThe dollar value of Canada’s M1+ (gross) money supply. Source: Bank of Canada, Better Dwelling.
Canada’s M1+ Money Supply Hasn’t Grown This Fast In 30+ Years
The rate of growth is so high, Canadians haven’t seen something like this in over three decades. The 27.69% rate of growth was last beat in October 1985. That kind of growth came after a 10 point drop from the peak reached in 1981. This kind of growth typically only occurs during a booming economy, and points to increased production.
Canada M1+ (Gross) Money Supply ChangeThe 12-month change in Canada’s M1+ (gross) money supply. Source: Bank of Canada, Better Dwelling.
Is a booming economy around the corner? The M1+ joins other indicators like a higher savings rate, pointing to strong productivity in the future. The pandemic has created a noticeable divide amongst people though. While savings pile up, and wages experience growth not seen in years, it’s also accompanied by a wave of unemployment. This is further indication Canada may be setting up for a k-shaped recovery, and rising inequality.
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