ECON371/UBCO2024WT1/NewsWiki/group1week9

Source:

https://globalnews.ca/news/10766513/inflation-interests-rate-bank-of-canada-economic-pain/

Problem:

Even though the increase in wages is larger than the rate of inflation, other significant problems remain in the economy such as mortgage renewals.

Prof: I do not see a link between the contents of this article and environmental economics concepts that we have been discussing in class.

Summary:

This article covers multiple recent issues in the Canadian economy. While wages are outpacing inflation, interest rates for borrowing have increased, so more people are inclined to save their money, which means less spending is going on, slowing down the economy. There also has been an increase in the rate of unemployment by 6.6% due to the the size of the labor force recently expanding. Interest rates are higher than they were before, so the dampening effects to decrease inflation will last longer than intended. According to some economists, it is also likely the interest point will end up below the neutral rate. This ties into the very large number of mortgages being renewed that will have a higher rate than before the pandemic, with that higher rate most likely lasting for a few more years as well. Since the 2 cent inflation goal is only stalling the economy, the higher rates may be in vain in the 2 cent inflation goal is not a success. The efforts to retrain the amount of inflation while preventing a recession is predicted to increase the rate of unemployment by two percent in the coming months due to increased layoffs and people who can't find a job in the first place.

Economic concepts:

unemployment rate: unemployment rate is the current amount of people in the work force that are looking for a job that are currently not employed. This is different from the amount of people not working at a job, as some people are self employed, people who aren't looking for work, and those who are too young to work. The current state of the economy often influences the unemployment rate. For example, if the government was giving out relief for a pandemic, people might be inclined to not seek employment.

Price stability: The goal of minimizing deflation and inflation, trying to minimize the affects they may have on the economy. Essentially, the government is trying to keep prices from fluctuating too drastically. This only considers the nominal value of items, and not their actual value.

Application of concepts:

Unemployment rate: In this article the increased interest rate has a significant impact on the rate of employment, which has recently decreased.

Price stability: This article is centered around the topic of price stability and illustrates its importance. While the Bank of Canada was trying to maintain a two cent inflation goal, price stability recently has been very hard to maintain. The last few years have seen a very high rate of inflation, and it doesn't look like it will slow down anytime soon. This, the focus has shifted to mitigating inflation at a certain rate instead of trying to prevent it altogether.

Conclusion:

The attempts to reduce the rate of inflation by having wages increase at a faster rate does prove to be valuable, but potentially risky as even though wages are increasing, the rate of unemployment is as well.