http://www.canada.com/business/Inflation+rate+slows+unexpectedly+March/2942390/story.html
Summary:
The consumer price index rose 1.4% in March from a year earlier in Canada, following a 1.6% annual pace the month before. The Bank of Canada decided that they would keep its trendsetting interest rate at 0.25%. The reason for the record low 0.25% interest rate was to aim to pull the country out of recession by encouraging spending by both consumers and businesses. The central bank said that the first quarter economic growth will be near 6%, the fastest pace in 11 years. The overall inflation is forecast to reach 2.4% later this year. Consumer spending is expected to grow strongly for the remainder of the year and the next. The consumer prices rose in all provinces in the 12 months to March. The drive from gasoline pushed the prices up.
Connection:
The connection in the chapter is the monetary policy. Monetary policy is an economic stabilization tool that operates through changes in the money supply. When the money supply changes, the interest rate changes as well. The article talks about Canada’s interest rate at a record low 0.25%. This is a way to encourage more spending to boost up the inflation. As the article stated, the inflation rate is projected to reach 2.4% compared to the target of 2%. Canada wants to leave the interest rate for now to drive the economy up to get ready for July.
Reflection:
I think that this is great for Canada. This will definitely boost our economy and make it stronger than before. As we get closer to our target point, the interest rate will begin to grow. This way it will cause us consumers to spend less. Hopefully this will slow our inflation down also. The inflation rate has already been projected at a higher percentage than the targeted. It will turn down consumers if the interest rate continues to grow. As inflation rates increase, however, it does create more opportunity for jobs. This is like a double-edged sword.
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I agree that the monetary policy influences the inflation rates. When the economy isn’t doing well, the Banks of Canada would lower the interest rates. As a result, people will spend and this leads to an increase in the money supply. The inflation rate in Canada is definitely growing faster than expect but it will slow down in the future due to increase in interest rates. This is actually a good thing because if the Canadian dollar value gets too far ahead of the American dollar for example, it would be much cheaper to purchase products from an American company. The demand for Canadian companies will decrease and layoffs may occur. This decreases Canada’s economic productivity and inflation rates would slow down.
ReplyDeleteAdjusting interest rates are part of the monetary policy to control inflation and unemployment. In this particular case, the Bank of Canada would soon have to increase interest rates to control inflation. Our historically record low interest rates were the result of the meltdown about two years ago to encourage more spending. Now, we are in a recovery and people are spending money again. According to the law of supply and demand, the demand goes down when prices increase. Increasing interest rates is increasing the “price” of money, so the demand for money also goes down, resulting in lower levels of spending.
ReplyDeleteDue to high unemployment rate, the central bank decided to keep this low interest rate to 0.25% to stabilize the Canada economy. By doing that, it will encourage people to spend more. For example: people purchase more houses and cars, which can strengthen the Canada economy. The central bank adjusts the interest rate to control the employment rate and It would also stabilize the Canada economy. As people are more willing to spend more money, the unemployment would decrease. When our economy is better, the central bank would raise the interest to control inflation.
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