Article: Inflation surprise gives Bank of Canada reason to hike rates earlier: http://network.nationalpost.com/NP/blogs/tradingdesk/archive/2010/03/19/inflation-surprise-gives-bank-of-canada-reason-to-hike-rates-earlier.aspx
Summary: Higher than expected inflation is causing the Bank of Canada to consider hiking interest rates. The CPI is rising at a rate of 4.2% per month. This led to the rise of core inflation above 2% for the first time since December of 2008. A core CPI rate of 4.2% is much higher than the Bank of Canada's ideal rate of 2% per year. This could cause an interest rate increase as early as the 2nd Quarter of 2010. According to Krishen Rangasamy of CIBC World Markets, this is nothing to get worried about and is being overblown like the thought-of deflation of the economy during the recession.
Connections - The book talks about CPI and inflation. These are very good economic indicators and are good ways on seeing the progress of a nation's economy. Inflation is when there is a general increase in the price of goods and services. The CPI index measures the average price of goods and services purchased by a household. As you can see, these 2 indicators are very similar and are both closely related. Problems can arise if the CPI and inflation rise too quickly and the Bank of Canada must act to control the rate of increase.
Reflections: I find it interesting how only 2 years ago, people became so scared that the global economy would plunge into a recession. Now, some are beginning to get concerned over inflation rising too fast! However, I do agree that inflation and core CPI levels need to be kept in check. If it rises too quickly, thse on fied incomes can suffer greatly. I also like the fact that inflation is generally easier to control than a recession. Interest rate changes can quickly keep inflation in check.
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I totally agree with you that inflation can cause huge problems to everyone, especially the poorer ones as they are spending large portion of their income on daily necessity. I think inflation and recession is not comparable because drastic inflation can cause fear in peoples' mind and eventually form recession or depression. Bank of Canada is now keeping a close eye on the CPI level to determine whethershould they increase the interest rate to restrict the supply of money. I advice the bank of Canada should start look in real estate market and apply some regulation to prevent bubbles from forming. For example, government should leverage the threshold of down payment to a higher level.
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