First of all, you should know that the Bank of Canada plays an important role in the Consumer Price Index. One of its goals are to maintain a low, stable and predictable inflation, in order to have a safe and secure currency, and to accomplish this, it strives to keep the inflation rate between 1% and 3%. Since the bank was initiated, the average inflation rate has been 3.13%. One advantage the bank has in achieving this goal is the ability to set the interest rate for money borrowed. Another is the power to ask Statistics Canada to periodically adjust the way the CPI is calculated.Since the 1980s, keeping inflation low has been the central bank's main priority.
Increased inflation 1960s
The time between the end of the Second World War and the early 1970s was quite prosperous for Canada, as compared to Some of the European countries. We came out of the war with a fairly strong economy. Moreover, there were sizable and sustained gains in productivity through the 1950s and 1960s. These reflected the revolution in agriculture and the innovation and industrialization and changes in technology that occurred during and after the war.
All this led to a rise in Canadian standards of living instead of the post-war depression that many had feared. Even though the agriculture industry saw the departure of a lot of its workers, the overall unemployment rate remained low. So you could see in the table, that the inflation rates were quite low through the 50s and the 60s prior to '64.
However, toward the end of the 20th century, inflation rates rose at an alarming rate, a phenomenon which was dubbed, "The Great Inflation", which lasted from about 1965 to 1984. Some reasons for the high inflation rates from the 60s to the early 80s, according to the economists include large and rising fiscal deficits (due to widespread acceptance of the Keynesian theory, and the idea of coordinating monetary and fiscal policy), a slowdown in productivity growth; and a decline in the prices of primary commodities.
On the other hand, a recession will lead to the decrease in the inflation rate, because people will be spending less and saving more.There will be more supply and less demand, and as a result, prices will drop. This is a reversal of the demand-pull. This situation creates a deflation instead of an inflation. For instance, one can see in the CPI chart that during the Great Depression from 1929 to 1939, the inflation rates were very low. There was a similar occurrence during the 2009 recession, although on a much smaller scale.
Great Depression chart
To conclude: inflation is a given; no successful economy can be completely without it.It happens on a regular basis, and it often differs from year to year.While it has its negative aspects, mainly the increased prices hence making it harder to come by needs and wants, and decreased purchasing power, it has some positives in that it helps to boost the economy, for example, one that is stuck in a recession. All in all, I believe that inflation needn't be a bad thing necessarily; it only needs to be carefully managed.
Thank you.
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