Canada's Inflation Rate Eases to 1.2%

http://www.cbc.ca/canada/toronto/story/2009/01/23/inflationdecember.html

At 1.1 per cent, Canada’s inflation rate has slightly eased for the month of January in comparison to last year’s increase of 1.2 per cent. The price of gasoline and passenger vehicles has decreased according to Statistics Canada. As a result of the sharp decline in the price of gasoline, the increase in consumer prices seen in December were the smallest increase since January 2007. However, while the price of gasoline declined the prices for food increased. During the 12-month period, the price of food has risen 7.3 percent. Deflation can be seen in the Maritime Provinces such as Nova Scotia, where the 12-month decline was 0.2 per cent. As stated by Statistics Canada, this was the first annual price change in any province that fell into negative territory since October 2006. A number of economists predict that the inflation rate of Canada will decline in the coming months.

Demand-pull inflation and cost-push inflation are two causes for the rise in consumer prices. These causes can also be used to explain the decrease in consumer prices, or deflation seen in the past month. The decrease in gasoline prices is the main factor in the decline of the national inflation rate. In the summer months of 2008, there was a significant increase in gas prices because of a decrease in supply of crude oil. This resulted in cost-push inflation. However, as the gas prices became less affordable for consumers, the demand for oil decreased. As a result, inflation caused by demand-pull inflation eased, resulting in lower prices for gas. However, for other items which are needed for survival such as food and clothing, the consumer prices have followed regular trends of inflation.

I have definitely seen the effects of deflation in the past month around the city. For example, auto dealers are willing to give away a new BMW for every apartment purchase in West Vancouver. In comparison to the economic situation sin the United States, and North Korea, Canada is still doing well in the global economic downturn. In my opinion, Canada will most likely see inflation rates decrease in the coming months. This may help relieve consumers who are struggling in the current economy. Moreover, the low prices may help create the demand needed to increase economic activity in Canada.