The Globe and Mail reports in its Thursday, Sept. 16, edition that while massive government borrowing and spending were necessary to avoid a deflationary spiral, some people worry all that stimulus will ignite inflation.
A Globe editorial, however, says the latest headline inflation number is at least as much noise as signal. For example, strip out the cost of gasoline -- a global price the Bank of Canada has no ability to control -- and inflation in August was 3.2 per cent, not 4.1.
Strip out other volatile elements to get at what it known as core inflation, and the picture get less worrisome again. Remember that today's higher prices are coming on the heels of last year's lower prices, when Canada experienced a recession. It is what economists call the "base effects" -- an inflation calculation whose denominator is a previous period of low prices. BMO Economics notes that the two-year inflation rate averages out to 2.1 per cent. Last week, the Bank of Canada suggested the underlying factors in recent higher prices are "transitory." An economy that nearly came to a standstill in 2020 is getting back in gear. Despite the headlines, The Globe says inflation is not enemy No. 1.
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