Inflation is growing to become a concerning matter in the world
- The Bank of Canada: Canada’s central bank, responsible for the country’s monetary policies
Inflation’s Role in the Economy
Inflation refers to an increase in prices of goods and services in an economy. When the general prices rise, the currency had lesser value, which results in lower purchasing power. Normally, a low and steady rate of inflation is favoured by economists as it reduces the severity of economic recessions by enabling the labour market and businesses to adjust more quickly to the subtle changes. On the other hand, high rates of inflation can lead to massive devaluation of currency and very likely causing an economic recession, or even collapse.
The Causes of the Current High Inflation Rates
Many experts pointed out that the disruptions in the global supply chain is one of the major causes for the increased inflation rates around the world. Since the start of the COVID- 19 pandemic, many businesses and industries ceased operations due to health restrictions. However, when the market reopens, the business couldn’t take on the sudden high demand which leads to a shortage of all kinds of goods worldwide. With lesser products on the markets, the purchasing power so the currencies decrease and therefore increasing the inflation rate.
Why Is Inflation Concerning and How It Affects Our Lives
With an increased inflation rate, the purchasing power of a currency decreases. In Canada, the inflation rate hit 4.4 percent from 4.1 percent in August, which is the highest level since February 2003. As a result, transportation, housing, and food costs jumped, with gasoline being the biggest inflation driver as prices have increased by 32.8 percent compared with September 2020. Food prices have also gone up by 3.9 percent and the cost of housing increased by 4.8 percent. In the end, people with lower income affects the most, as their cost of living increased drastically but their income changed little.
How Different Countries Are Dealing with This Issue
Many countries have decided to increase interest rates to control the inflation, but according to experts in the field, the Bank of Canada lowered the country’s baseline interest rate 0.25 percent last year to stimulate and support the economy. Hence, the Bank of Canada is not expected to make this move yet.
British Broadcast Corporation. “Canada’s Inflation Rate Hits a Fresh 18-Year High.” Canada’s Inflation Rate Hits a Fresh 18-Year High, British Broadcast Corporation, 20 Oct. 2021, https://www.bbc.com/news/business-58986399.
“Inflation.” Wikipedia, 12 Nov. 2021. Wikipedia, https://en.wikipedia.org/w/index.php?title=Inflation&oldid=1054798979.