HIGH INFLATION IS NOT PERMANENT, BUT WILL STAY TILL END OF THE YEAR: BANK OF CANADA

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  • Have you ever wondered why prices of just about everything are much higher these days? Maybe it has something to do with the Bank of Canada. The Bank regularly reports its views on the economy and inflation. The Bank of Canada’s mandate is to conduct monetary policy to promote economic and financial well-being of Canadians. Recently, the Bank forecasted a new inflation for the rest of 2021, and 2022.

    These findings and predictions can be found in the July MONETARY POLICY REPORT (released on July 14, 2021). It seems that the Bank is keeping an eye for any changes above or below the baseline 2% inflation rate. In answering the question posed earlier, prices of some items in the CPI (Consumer Price Index, an economic tool that tracks price changes of certain basic items) can be quite volatile. Hence, these price changes and some taxes (eg… GST/HST) can increase prices of commodities. CPI inflation will likely remain at or above 3% through the end of 2021. It may ease up a bit in 2022, and then rise modestly to above 2% in 2023. Hopefully it will go down to baseline 2% in 2024. At least that’s the plan.

    Related to the 3% inflation prediction are 3 factors that led to this price increase in the CPI.
    Firstly, gas prices moved up from very low prices a year ago, and are above pre-pandemic levels. Secondly, prices of items measured by the CPI, that dropped in price last year due to low demand, are now back up due to increasing demand. Thirdly, supply chain issues like shipping bottlenecks (eg.. shipping containers are in short supply), and the worldwide shortage of semiconductors, have influenced prices of certain items that are sensitive to supply constraints, such as vehicles, and home repair products.

    Meanwhile, the Monetary Policy Report tells us that employment rate remains 1.7% points below where it was in February, 2020 (the start of the Pandemic). Those that are unemployed for 52 weeks or longer is at the highest level since the pandemic started. On the other hand, wage increases have remained very mild.

    On the housing front, activity is predicted to remain higher than before pre-pandemic levels. The issue is that strong housing demand, coupled with limited supply, has helped increase house prices from 2020 thru to 2021. There are signs of increased supply of housing. This should improve the balance in housing markets.

    So there you have it. My 2 cents about why price of everything seems to be going up and wages are not.
    And why there is hope in the immediate future. As in everything, believe with a grain of salt, as things are academic till they come to pass(Vincent C. Goleco Jr.)

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