Sunday 20 October 2013

2013-53 On inflation and inflation statistics

Because of the weakness of the Canadian economy, inflation has been low


In an interesting article that you should read, the author discusses whether Statistics Canada inflation numbers can be believed.

I will summarize his main points:
1. People he knows complain that, in their opinion, inflation is higher than the 1-2% reported by Statistics Canada
2. Indeed, he says, several items increase in price at a higher rate: food, transportation, child care and, regrettably for you,  tuition fees (21% increase in the last 5 years);
3. Inflation is not the same for everyone. It is higher for necessities (food) than for more expensive items (electronics, cars). This exacerbates concerns about income inequality.
4. The best approach is to keep Statistics Canada independent; otherwise people will not believe its statistics.

Note point 3. The first part is trivial, of course. If you are a student with child care needs, you are facing big increases in the cost of living; if you are buy a lot of women's clothing and electronic equipment, you are enjoying deflation.
But the second part raises an important issue. Productivity growth is faster for manufactured goods than for foodstuffs. So, over time, poor families face rising relative prices.

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