Economist shares mixed impact of lower Inflation
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Hey there, time traveller!
This article was published 23/09/2024 (438 days ago), so information in it may no longer be current.
As Canada’s inflation rate drops to its lowest level since February 2021, the effect on rural communities remains uncertain, economist Rosa Sanchez said.
Canada’s annual inflation rate fell from 2.5 per cent in July to reach the lowest level since February 2021. In Manitoba, inflation dropped to 1.3 per cent in August from 1.8 per cent in July, one of the lowest rates in the country.
Statistics Canada’s consumer price index report for Tuesday said the slowdown can be attributed in part to lower gasoline prices.
Despite hitting the Bank of Canada’s two per cent inflation rate target, challenges such as high food prices persist, impacting the cost of living in rural areas.
Sanchez, who is also an instructor in the economics department at the University of Manitoba, said despite hitting the Bank of Canada’s two per cent goal, challenges such as high food prices continue, impacting the cost of living in rural areas.
“Labour shortages and wage increases in the agricultural sector are contributing to higher production costs,” she told the Sun in an interview.
A weaker Canadian dollar against the American dollar, she said, makes importing goods more expensive, further straining the agricultural supply chain and driving up prices.
The Bank of Canada’s contractionary monetary policy, she admitted, has brought overall inflation down, but also made borrowing more costly.
“As the Bank applied contractionary policy, consumption and investment for all Canadians is more expensive,” she said. “However, subsidies to agriculture might reduce the negative impact in rural areas.”
Regarding key factors expected to influence the inflation trend in coming months, the economists said lower gasoline prices are essential to reduce inflation, “as per reducing transportation cost within Canada and from outside Canada. However, reducing interest rates to support the housing demand brings conflicting policy to keep inflation down.”
While a decrease in inflation could pave the way for potential interest rate cuts to support housing demand, such a move might counteract efforts to keep inflation in check, she explained
“Lower inflation reduces prices which affects the food prices and, then, risks farmer profits, she said. “However, lower interest rate reduces the cost of capital for the farmer which could compensate the negative impact of lower prices.”
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