Canada's Inflation Rate

In this section I will be discussing how inflation rates have increased over the past 40 years, and what effect this has had on monetary growth. Inflation rates are defined as the rate of change in price levels in our economy especially Canada. Surveys are conducted quarterly or monthly to determine and generate a Consumer Price Index. The CPI is conducted with a “basket of goods” to determine changes in consumer prices for Canadians. It is important to study and analyze the rate of inflation because it helps the government determine how the dollar value has changed over a period of time. Also to adjust pending contracts and initiate new pensions which have to take into account the effect of inflation. Less well-off people and elderly are more

vulnerable to inflation as it affects their investment income and social benefits like pensions. Canada’s annual rate of inflation, which had reached a high of 12.5 per cent in 1981, has averaged 2 per cent since 1991.

For example, if the cost of the consumer basket rises, say, from $100 in 2007 to $102 in 2008, the average annual rate of inflation for 2008 is 2 per cent. People generally believed that if the inflation rate was higher than normal in the past so they will expect it to be higher in the future than anticipated whereas some takes in consideration the past along with current economic indicators, such as the current inflation rate and current economic policies, to anticipate its future performance. Over the long term, the earnings margins of corporations are inflationary and so are the wage gains of workers. According to rational expectations, attempts to reduce unemployment will only result in higher inflation. To fully appreciate theories of expectations, it is helpful to review the difference between real and nominal concepts. Anything that is nominal is a stated aspect. In contrast, anything that is real has been adjusted for inflation. To make the distinction clearer, consider this example. Suppose you are opening a savings account at a bank that promises a 5% interest rate. This is the nominal, or stated, interest

rate. However, suppose inflation is at 3%. The real interest rate would only be 2% (the nominal 5% minus 3% to adjust for inflation).The difference between real and nominal extends beyond interest ratesIn this section I will be discussing how inflation rates have increased over the past 40 years, and what effect this has had on monetary growth. Inflation rates are defined as the rate of change in price levels in our economy especially Canada. Surveys are conducted quarterly or monthly to determine and generate a Consumer Price Index. The CPI is conducted with a “basket of goods” to determine changes in consumer prices for Canadians. It is important to study and analyze the rate of inflation because it helps the government determine how the dollar value has changed over a period of time.

Also to adjust pending contracts and initiate new pensions which have to take into account the effect of inflation. Less well-off people and elderly are more vulnerable to inflation as it affects their investment income and social benefits like pensions. Canada’s annual rate of inflation, which had reached a high of 12.5 per cent in 1981, has averaged 2 per cent since 1991. For example, if the cost of the consumer basket rises, say, from $100 in 2007 to $102 in 2008, the average annual rate of inflation for 2008 is 2 per cent. People generally believed that if the inflation rate was higher than normal in the past so they will expect it to be higher in the future than anticipated whereas some takes in consideration the past along with current economic indicators, such as the current inflation rate and current economic policies, to anticipate its future performance. Over the long term, the earnings margins of corporations are inflationary and so are the wage gains of workers. According to rational expectations, attempts to reduce unemployment will only result in higher

inflation. To fully appreciate theories of expectations, it is helpful to review the difference between real and nominal concepts. Anything that is nominal is a stated aspect. In contrast, anything that is real has been adjusted for inflation. To make the distinction clearer, consider this example. Suppose you are opening a savings account at a bank that promises a 5% interest rate. This is the nominal, or stated, interest rate. However, suppose inflation is at 3%. The real interest rate would only be 2% (the nominal 5% minus 3% to adjust for inflation).The difference between real and nominal extends beyond interest rates