Main menu:

History of RPE Thought

Posts by Tag

RSS New from the CCPA

  • A critical look at BC’s new tax breaks and subsidies for LNG May 7, 2019
    The BC government has offered much more to the LNG industry than the previous government. Read the report by senior economist Marc Lee.  
    Canadian Centre for Policy Alternatives
  • The 2019 living wage for Metro Vancouver April 30, 2019
    The 2019 living wage for Metro Vancouver is $19.50/hour. This is the amount needed for a family of four with each of two parents working full-time at this hourly rate to pay for necessities, support the healthy development of their children, escape severe financial stress and participate in the social, civic and cultural lives of […]
    Canadian Centre for Policy Alternatives
  • Time to regulate gas prices in BC and stop industry gouging April 29, 2019
    Drivers in Metro Vancouver are reeling from record high gas prices, and many commentators are blaming taxes. But it’s not taxes causing pain at the pump — it’s industry gouging. Our latest research shows that gas prices have gone up by 55 cents per litre since 2016 — and the vast majority of that increase […]
    Canadian Centre for Policy Alternatives
  • CCPA welcomes Randy Robinson as new Ontario Director March 27, 2019
    The Canadian Centre for Policy Alternatives is pleased to announce the appointment of Randy Robinson as the new Director of our Ontario Office.  Randy’s areas of expertise include public sector finance, the gendered rise of precarious work, neoliberalism, and labour rights. He has extensive experience in communications and research, and has been engaged in Ontario’s […]
    Canadian Centre for Policy Alternatives
  • 2019 Federal Budget Analysis February 27, 2019
    Watch this space for response and analysis of the federal budget from CCPA staff and our Alternative Federal Budget partners. More information will be added as it is available. Commentary and Analysis  Aim high, spend low: Federal budget 2019 by David MacDonald (CCPA) Budget 2019 fiddles while climate crisis looms by Hadrian Mertins-Kirkwood (CCPA) Budget hints at priorities for upcoming […]
    Canadian Centre for Policy Alternatives
Progressive Bloggers

Meta

Recent Blog Posts

Posts by Author

Recent Blog Comments

The Progressive Economics Forum

Deflation Strikes Back?

Today’s Consumer Price Index provides an important reminder that, despite expansive monetary policy from central banks and perceived “green shoots” in the economy, deflation remains a more serious risk than rising inflation.

In April, the national inflation rate fell to 0.4%. Four provinces – Alberta, Nova Scotia, New Brunswick and Prince Edward Island – posted negative inflation rates.

While falling prices benefit consumers who have income, they also threaten to deprive workers of income. Consumers may delay major purchases in anticipation of even lower prices. Such a decrease in consumer spending would prompt businesses to reduce output and lay off more workers. A lower level of employment would further reduce consumer spending, placing additional downward pressure on prices and thereby perpetuating a deflationary spiral.

Of course, today’s numbers do not reflect such a generalized price decline, but rather a sharp drop in the price of gasoline compared to a year ago. While lower gasoline prices will probably not lead to a deflationary spiral, they rule out an inflationary spiral in the near future. In other words, even if the threat of deflation is small, the threat of inflation is even smaller.

The fact that national inflation is falling and seems likely to turn negative gives the Bank and Government of Canada a free hand to stimulate the economy without fear of accelerating inflation. Today’s Consumer Price Index validates the Bank of Canada’s (belated) decision to hold interest rates near zero until mid-2010. The central bank should keep open the possibility of quantitative easing. As suggested previously, further fiscal stimulus is also warranted.

Enjoy and share:

Comments

Comment from Paul Tulloch
Time: May 20, 2009, 8:20 am

unfortunately for most of the pundits, the green shoots analogy, is but another of the fairy tales being told to all those befuddled by the seeming complexity of the economy.

Duncan C.’s last article in Rabble resonated on the economic Richter scale at about a 8.0.

Hope is good, but you can’t eat it, I would really like to see one of these green shoots. About the only thing right about the analogy is the green, as it to me is about the only way out of this turmoil, rebuild an economy based on green. We can do it.

Imagine this, my uncle works part-time as a farmer out in Saskatchewan, yesterday he planted 600 acres of lentils. One man, one tractor, two types of fertilizer, one seed, 90 feet of machinery – one day- isn’t that kind of like Moses and the bread thingy? If we can achieve that after 300 years of innovation, we can transform the machine to be more green friendly.

Print the money and instead of giving it to rich bankers who drove us into the ditch by the side of the farm, give it to those willing to green the economy.

Imagine my chagrin, finding out that it was food prices driving up the CPI, after having such a cool lentil story. Damn stole my thunder!

paul

Comment from asp
Time: May 20, 2009, 7:08 pm

I still don’t get how low interest rates and higher inflation are good things. they are eroding my savings and propping up the housing and credit bubbles. Why do we want to pretend that the economy of 2007 was a good, stable, viable economy? Please don’t bring it back!

Comment from Declan
Time: May 20, 2009, 10:43 pm

Isn’t the real threat from deflation debt-deflation, i.e. the inability to pay back debts which causes default which causes more deflation?

Comment from Stuart Murray
Time: May 22, 2009, 12:23 am

No, everything goes haywire when the central bank can’t reduce interest rates below 0% in order to spur growth. Government options to spur GDP growth start to narrow sharply to tax cuts or increases in spending, and sustained long-term deficits. And even those would have limited long-term appeal. Also, people start to hoard cash, throwing bond markets into disarray. And people delay capital purchases like cars or housing renos So no this is not a good thing.

Write a comment





Related articles