Today’s Consumer Price Index (CPI) release reveals that inflation has dipped to 2.4% and core inflation has fallen to 1.8%, its lowest level since June 2006. These figures undermine the argument that interest rates should be maintained to slow inflation.
As the National Post reports, “A weaker-than-expected rise in the inflation rate for October could give the Bank of Canada room to cut interest rates.” Jim, Andrew, I and a delegation of other union economists will press the case for lower interest rates in meetings at the Bank of Canada later this morning.
Between September and October, goods prices fell somewhat while service prices rose slightly. Although retailers have not lowered goods prices as much as warranted by a parity exchange rate, the high dollar seems to have dampened inflation.
CPI exceeded “core CPI” mainly because of gasoline prices and mortgage-interest costs. Although gasoline prices fell from September to October 2007, they are still significantly higher than in October 2006. To the extent that lower interest rates moderate the exchange rate, they could slightly increase gasoline prices. However, they would clearly tend to reduce mortgage-interest costs.
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- Oil Prices and the Loonie Again (August 30th, 2012)
- Spinning Mr. Carney (August 28th, 2012)