Lower Inflation Frees Carney’s Hand, But Shelter Costs Rise

Statistics Canada reported today that consumer prices decreased in December, lowering the annual inflation rate to 2.3%. The Bank of Canada’s core inflation rate declined to 1.9%.

Tame inflation leaves room to lower interest rates. If unemployment continues to rise, the Bank of Canada should reduce interest rates to boost the economy and create jobs.

The modest inflation rate still exceeds the 2.2% average increase in hourly wages. Sluggish wage growth is another sign of a weak labour market, which calls for stimulative fiscal and monetary policy.

Although the overall price level decreased, shelter costs rose in December. Statistics Canada noted that higher electricity prices powered the increase in shelter costs, especially in Alberta.

These figures could generate more debate about regulating electricity prices in that province and removing the HST from electricity costs in Ontario. Broader discussions about housing affordability are also needed across Canada.

Erin Weir is an economist with the United Steelworkers union and a CCPA research associate.

UPDATE (January 21): Quoted by Postmedia

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