: An economist explains: What you need to know about inflation #IndiaNEWS #Business Toronto: Inflation is one of the most pressing political and economic issues of the moment, but there are many misconceptions

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An economist explains: What you need to know about inflation #IndiaNEWS #Business
Toronto: Inflation is one of the most pressing political and economic issues of the moment, but there are many misconceptions about how inflation is measured, where it comes from and how it impacts the average person.
In June, inflation in Canada reached a 40-year high of 8. 1 per cent. While there are signs inflation may be moderating, many Canadians have dealt with the surging cost of living by cutting back on expenses, working more to increase their income, drawing on their savings or taking on more debt.
As an economics professor who conducts research on prices and consumption, I would like to provide some insight into how inflation is measured and how it is impacting Canadians and the economy at large.
Inflation refers to a general increase in prices and the resulting decline in the purchasing power of money. While most of us can sense whether inflation is high or low from everyday purchases, the inflation rate that gets reported in the press and discussed by policy-makers is a specific measure created by a small army of statisticians and data collectors.
Statistics Canada constructs the Consumer Price Index (CPI) used to track inflation through a two-step process. In the first step, Statistics Canada collects over one million price quotes on virtually anything purchasable in the country.
Prices are recorded in a variety of ways, and the frequency and geography of price collection depends on the item. For example, items with prices that change quickly like food or gasoline, or vary across locations like rent, are collected more frequently than items that are collected once a year, like university tuition or insurance rates.
In the second step, Statistics Canada aggregates these prices to generate the all-item Consumer Price Index by weighing each items price change by its share of total consumer spending. These weights are occasionally updated to reflect changes in consumer spending patterns.
The most recent update in 2021 reflects some pandemic-related spending changes, such as a lower weight for food (15. 75 per cent) and transportation (16. 16 per cent), but a higher weight for shelter (29. 67 per cent).
Statistics Canada and the Bank of Canada also measure “core inflation� which removes items with the most volatile prices (food and energy) from the CPI to provide a better sense of slower-moving, long-term cost pressures.
Prices are determined by supply and demand. High inflation is a sign that, across the economy, demand for goods and services exceeds their supply.
Demand has been strong due to strong employment and wage growth, cheap credit, pandemic-related payments from governments and pandemic-related shifts in demand towards goods consumed at home.

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