rates
CONSUMER PRICES: A DEFLATING ASSESSMENT
Our society is conditioned to expect things to increase, to improve, to rise: think population, gross domestic product, service quality, technology, incomes, and prices, to name a few. With regard to the latter, that expectation is rooted deeply in historical experience, with consumer prices tending to rise, more or less, each month and each year. This is, by definition, what inf lation is. Our economy rarely experiences def lation—a situation where prices are falling. Yet, that is precisely where we found ourselves beginning in April of this year as the Great Suppression began to live up to its name insofar as the shutdown suppressed
consumer demand. By May, not a province in Canada had avoided price def lation (per changes in the Consumer Price Index), with the national annual rate of “inf lation” descending to -0.4% in May. While prices have rebounded somewhat since then as employment has begun its recovery and the economy has continued to open up, August’s inf lation measure was only 0.15%, which was well below the Bank of Canada’s target of 2%. As noted in the previous section, should inf lation remain low, or negative, for an extended period of time, don’t expect interest rates to budge—a boon to existing home owners and other debt holders.
THE GREAT DECLINE IN THE CONSUMER PRICE INDEX
3.5%
THE GREAT SUPPRESSION
3.0%
2.5%
2.0%
2.0%
1.5%
1.0%
0.5%
0.15%
0.0%
-0.5%
-1.0%
-1.5%
-2.0%
BRITISH COLUMBIA
CANADA
BOC TARGET
DATA: ANNUAL RATE OF CHANGE IN THE CONSUMER PRICE INDEX BY PROVINCE
SOURCE: STATISTICS CANADA
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