Statistics Canada reported today that, for a third consecutive month, consumer prices declined and the inflation rate fell below 2%. In July, the inflation rate was 1.3% and the Bank of Canadaâ€™s core rate was 1.7%.
Gasoline and natural gas prices, which have been lower this summer than last, dragged down the overall Consumer Price Index. However, there is little indication of inflationary pressure anywhere.
Even those categories with the largest price increases were in line with the Bank of Canadaâ€™s 2% target. Food prices and household expenses rose 2.1% over the past year. The inflation rate for services was 2%.
With inflation subdued, there is no pressure for the central bank to raise interest rates. Indeed, the Bank of Canada could intervene to bring the overvalued exchange rate down to more competitive levels
without stoking significant inflation.
Low interest rates and low inflation create an ideal environment for public investment. Governments can finance long-term infrastructure spending very cheaply. Such investment would contribute to economic growth and employment without imposing discernable cost pressure on the wider economy.
UPDATE (August 18): Quoted in todayâ€™s Toronto Star (page B5), Montreal Gazette (page C3), Waterloo Region Record (page D2), Victoria Times Colonist (page B5), Regina Leader-Post (page B1), Guelph Mercury (page B7), Cape Breton Post (page A9) and Truro Daily News (page A7).
- Challenging Inflation Targeting (August 17th, 2016)
- Ten things to know about the 2016-17 Alberta budget (May 3rd, 2016)
- Seccareccia on Greece, Austerity and the Eurozone (February 5th, 2015)
- Louis-Philippe Rochon’s Top 10 Economic Predictions for 2015 (January 11th, 2015)
- Problematic sources of recent real wage growth (January 21st, 2014)