Inflation Returns

Canada’s extended summer of deflation ended in October, when the national inflation rate rose to 0.1%. This change reflects a lowered base of comparison: the price of gasoline plummeted between September and October of last year.

The return of inflation should not be overstated. Today’s inflation rate is barely positive and falls short of the 0.3% that analysts had been forecasting.

The absolute level of consumer prices actually edged down between September and October of this year (but was higher on a seasonally-adjusted basis). Four provinces posted negative inflation rates. The Bank of Canada’s core inflation rate, which excludes gasoline, remains below its 2% target.

In other words, Canada still has a low-inflation economy. The government and Bank of Canada still have ample room to pursue stimulative policies without stoking excessive inflation. Indeed, dismal Gross Domestic Product numbers warrant more significant fiscal and monetary expansion to spur growth.

While inflation remains a non-issue for macroeconomic policy, the return to positive inflation comes just as the past year’s labour-market carnage is exerting a measurable drag on wages. Given limited or no pay increases, even modest inflation may have a noticeably negative effect on the purchasing power of Canadian workers.

However, a hawkish policy on inflation would worsen this problem by also constraining output and jobs, thereby amplifying the downward pressure on wages. With production so far below capacity, more expansionary policy can increase employment and wages at a faster pace than inflation.

UPDATE (November 18): Quoted by Reuters

UPDATE (November 19): Quoted by The Toronto Star


  • Erin Weir and others are focused on short-term tea leaf statistics. Inflation up; inflation down. Raise interest rates; lower interest rates. Stimulate; reduce debt. Meanwhile long term shifts in economic control are taking place.

    I work at the University of Toronto and am a member of Erin’s union, the United Steelworkers. Here the university’s Business Board is discussing a new pension fund oversight committee, prompted by an Aug. 17 arbitrator’s award in a dispute involving the faculty association and the university, a dispute that appears to have arisen as a result of the recent steep drop in the value of our pension fund. The arbitrator has ordered the creation of a new pension fund oversight committee, with representatives from the university and the faculty association. Are the members of USW Local 1998 or the other campus unions at the table?

    The same discussions concerning governance of pension funds are taking place on campuses all over Ontario and Canada.

    Why does every university in our provincial systems have its own pension fund? The money for these funds comes mostly from taxpayers via employers and employees. Is there some advantage in maintaining and managing dozens or hundreds of separate pension funds? Who benefits from the balkanization of postecondary pension funds? Aren’t there both economies of scale and positive investment gains to be made by consolidating these smaller funds? Wouldn’t retired professors and admin staff have better pensions if these funds were consolidated? How much is local control of pension funds really worth?

    USW, CAW, CUPE, OSSTF and other progressive economists should get together and try to answer those questions and come up with recommendations for their respective unions. Meanwhile, here at U of T, the USW and other unions should take steps to ensure that their members are well represented at the pension fund table.

  • George:
    Our private pension system is very inefficient for the reasons you list as well as many others. On top of that receipt of benefits is uncertain due to the vagaries of financial markets as many thousands of people are discovering to their dismay.
    The way to provide 100% secure, portable and inflation indexed pensions to all Canadian workers is to increase CPP and other income supports for older people. The Canadian Labour Congress is calling for a doubling of CPP and an increase in the Guaranteed Income supplement. While this is not enough as CPP should be more than doubled and the Old Age Supplement increased considerably as well, it is a good start nonetheless.
    The ultimate goal should be to replace almost all private pensions with public ones.

  • And meanwhile? Admin staff members and faculty members at our universities depend critically on their university pension funds and pension plans. We can’t afford to ignore these funds/plans while we wait for the day when private pensions will be replaced by public ones. And we can’t afford simply to ignore the current round of pension fund governance reforms. This is the time to act. The window will close rapidly.

    I would suggest a two-pronged approach: keep fighting for CPP improvements and, at the same time, work hard for postsecondary (and other) private pension protection. (We might also ask just what makes Canadian postsecondary pensions “private”; they are paid for by taxpayers and student tuition fees via employee and employer contributions.)

    Progressive economists and lawyers (USW, CAW, CUPE, OCUFA, etc.) would be doing their members a great service by acting now, while the iron is hot, to make tested and reasoned recommendations to ensure that we are not left behind. From a purely academic point of view, the questions of postsecondary pension fund consolidation and pension fund oversight and management are interesting ones.

  • Actually the third prong of the CLC program is to have pension insurance for private plans facing immediate problems which covers off your “ and meanwhile“point, I think.
    Another way to support all retirees immediately would be to increase OAS substantially. As well, adding a lump sum base amount to CPP immediately, paid for by the federal government and not based on contributions, would support workers having retired from the Canadian labour force. (Just a thought. This is not how CPP currently works). Both measures would also support the many people with private savings in RRSPs who have lost much of their retirement nest egg.
    With regards to CPP, a boost in benefits would also alleviate many solvability issues of private pensions since many, if not most, private pension plans are integrated with CPP.

  • We can act locally, provincially and federally on pension protection and goverance and that’s what we should do, until such time as Parliament adopts the CLC program.

  • Shouldnt peoples cost of living be falling after the greatest rescession worldwide since the great depression? Cost of living should not be a problem for anyone if Inflation is reported & measured correctly, if to accurately report our GDP. However Inflation is not reported & measured correctly.

    I have Three simple questions for this site, Im very confused if inflation rreports are accurate.

    College should not be so expensive. It’s the biggest recession since the Great Depression. How could college prices go up???

    HealthCare should not be so expensive. It’s the biggest recession since the Great Depression. How could prices go up?

    Commodities should not be so expensive. It’s the biggest recession since the Great Depression. How could commodity prices go up?

    Maybe its because I’m from BC and have a liberal government.

    We already have stagflation and inflationary forces sre starting too win out

  • A correction in the last sentence of my November 20 comment, second to last line: “solvability“ should read “solvency“. The french word is `solvabilité“ and I had just been doing work in french and had the wrong word stuck in my mind.

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