Tuesday, February 22, 2005

More Currency Issues

Surprisingly, the Loonie didn't do as well as one might expect, given the twin news today that inflation fell to just 2% - below market predictions - and the already-mentioned Korean news.

On the other hand, with low inflation there's no reason for the Bank of Canada to raise interest rates, so the market probably isn't too enthused.

However, there's one thing that I heard this morning on CBC and read again in this article that bothers me:
Canada's annual inflation rate dipped to 2.0 percent in January from 2.1 percent in December as cheaper computer equipment and clothing moderated an increase in gasoline prices, Statistics Canada said on Tuesday.

Okay, I understand that StatsCan shouldn't be in the job of advocacy, but can we have at least one journalist explain that this might not be a great thing for actual human beings? People don't spend money on things like computers with a lot of thought towards annual prices. On the other hand, gasoline is a commodity that many commuters "need" to buy, almost regardless of the price. Assuming that the previous gas bill was $100/month, an 8% increase this year means an extra $100 every year. Meanwhile, assuming a family only buys a computer once every three years, that decline in computer prices is going to mean a lot less - on the order of $30 each year.

Too bad for us, journalists don't seem to deal with issues of economic inequality much. One of my bigger grudges is the measurement of "Core" Inflation as opposed to regular inflation. The Bank of Canada uses Core CPI as it's benchmark, which totally ignores increases in energy and food prices - i.e., huge parts of a working-class family's budget.

There are a number of good reasons to use Core CPI for a benchmark - it's more stable, mainly. However, it's just another way of writing out the poor from Canadian policy. It grates on my nerves.

(The Bank of Canada should ABSOLUTELY be using Core CPI, btw. The Parliament, however, should be paying more attention to the non-core sector, and finding policies that reduce the cost and volatility of food and energy prices. But that would presume a party that cared making it to government...)

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