Wednesday, August 19, 2009 0 comments ++[ CLICK TO COMMENT ]++

Inflation hits a 56 year low in Canada... but core inflation is what matters

The Globe & Mail is reporting that inflation hit a 56 year low in Canada, but what is more relevant is the core inflation, which has been stable:

Canada's annual inflation rate slid to the lowest level in 56 years last month, dropping more than expected for the second straight month to set overall prices 0.9 per cent lower than last year, Statistics Canada reported Wednesday.

The fall on a month-to-month basis was even more dramatic, as prices in July fell 0.3 per cent from the previous month, reversing the similar monthly increase registered in June.

Still, economists say there is little concern that deflation – a broad-based and persistent decline in prices that could inflict further damage on the economy – is setting in Canada, as it did in Japan during the 1990s.

That's because only three of the major components tracked by Statistics Canada are experiencing deflation and most of that is based on falling gasoline prices.


Statistics Canada also pointed out that excluding the energy component, inflation remains a healthy 1.8 per cent in Canada. Core inflation is also close to where the Bank of Canada would like it, at 1.8 per cent, only slightly below the desired two-per-cent target.

Canada hasn't seen much deflationary pressure, which isn't surprising. There was no housing bust here (at least so far); there wasn't any financial crisis; and so forth.


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