More On Canadian Inflation

“March Inflation Reports Show Inflation On The Rise Across The Country”

The March inflation numbers out showing a month to month increase in inflation for every province and territory.

Here’s all the specific statistics broken down by region http://www.theglobeandmail.com/report-on-business/inflation-across-the-country/article1990894/?utm_medium=Feeds%3A%20RSS%2FAtom&utm_source=Report%20On%20Business&utm_content=1990894

Time to break out Chicken Little…the sky is falling.  Or to the bank of Canada Governor, inflation is getting away on us, time to slam on the breaks and increase interest rates to slow the economy down.

Or not.

As I recall from economics class, there is real and perceived inflation.  Real inflation occurs when the available economic capacity of a country starts to deplete, causing pricing pressure on the available resources.

Perceived inflation is when people think inflation is present or think its rising, so they start increasing their prices to allow for what they perceive to be in effect, whether it is or not.

If there is too much continuous talk about inflation being on the rise, then perceived inflation effectively becomes real inflation as people’s actions cause it to happen.

I’m not saying this completely the case right now, but with all the press being directed towards inflation and interest rates these days, perceived inflation is definitely contributing to the rise in inflation to some degree.

The combination of real and perceived inflation would appear to be reaching critical mass in terms of something having to be done about it.

As more and more information is reported on the subject, the more inflation is likely to increase.

If someone wanted the interest rate to move in one direction or another and could control or significantly influence public opinion on the subject, they could potentially create the interest move they were looking for.

More likely this can happen on a follow the herd mentality where the topic gets enough short term press at the right time where everyone jumps on the bandwagon and causes their collective inflationary fears to come true through their actions.

Regardless of how you choose to look at it, it appears that interest rates are likely going to start moving upwards very shortly, potentially as early as May.

Hopefully the make up of the actual inflation is more real than perceived so that the corrective actions likely to be taken are appropriate and produce the desired result with the least amount of suppression to economic growth.

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About the Author Brent Finlay