Vanishing Inflation
This morning’s Consumer Price Index release reveals that, in March, annual inflation fell to 1.4% and annual core inflation fell to 1.3%. The fact that both rates are well below the Bank of Canada’s 2% target gives it ample room to cut interest rates next week.
Even the two highest-inflation provinces, Alberta and Saskatchewan, are no longer much above the Bank’s 1%-3% target range. Meanwhile, Ontario inflation has dropped below 1%.
For most of 2007, the spectre of inflation prevented policy makers from delivering significant economic stimulus to revitalize Canada’s slowing economy. Now that inflation cannot credibly be presented as a serious threat, there should be less resistance to calls for lower interest rates and more public investment.
UPDATE (April 18): CanWest coverage
Is there any reader or writer for this site who might be able to enlighten us as to the reasons behind the incredible disconnect between global food prices, which are skyrocketing and leading to massive popular uprisings, and Canadian food prices, which are remarkably stable?
I do not purport to be an expert on agricultural markets, but as the PEF blogger from Saskatchewan, I will take a stab at your inquiry.
Although the prices of staple crops are rising, such crops account for only tiny fractions of the cost of most food products available on Canadian store shelves. Therefore, large changes in crop prices have relatively little effect on Canadian food prices. Meanwhile, other components of retail food costs, such as the wages of retail workers, have fallen.
What I believe is happening is-we are tipping into the first stages of deflation,led by the US–