https://tradingeconomics.com/canada/inflation-cpi
Have you noticed about inflation rate that they compared to the same period of last year, which is a base year?
According
to the chart last year, the inflation rate was +8.1%, and this year was +3.4%
higher as compared to the last year.
We
could conclude that the inflation rate of this year was 8.1% + 3.4% = +11.5% as
compared to 2 years ago, i.e. 2021. The rate increase didn't work; otherwise
the inflation rate should be lower than +2% or negative.
In
life, we are doing estimate or rough calculation for many things. If you wanted
to be precise about the “should be rate” of May 2023 inflation based on the
central bank’s rule of “roughly less than +2% a year”. Pull out your calculator
or pen/paper.
May 2021: let a core item’s cost is “$a”.
May 2022: inflation rate is 8.1% higher than 2021. Thus cost of the core item $1.081a.
May 2023: the same item costs $1.081a * 1.034 for 3.4% inflation rate.
What
should be the highest cost or ideal cost of the item “a” based on central bank’s
rule in June 2023?
1.02
* 1.02 * $a
Now you can calculate the ideal “inflation rate” of May 2023, which should be negative.
The way they posted news about inflation rate is very confusing and made people believed that inflation rate was going down closer to the expected range.
The
rough estimate for May 2023’s inflation rate should be “-8.1% + 4%” is -4.1%
as compared to 2022.
P.S.
I am not sure about data on the chart as the news broke out today (2023-07-28)
from BNN Bloomberg said that the June 2023 inflation rate cooled down to 2.8%.
However the above note showed you how to estimate the "should be"
rate.
Perhaps you should try to use data from this chart by Statistics Canada and use the same calculation method to estimate "should be" inflation rate shown in notes above.
ReplyDeleteSource: https://www150.statcan.gc.ca/n1/daily-quotidien/230718/cg-a001-eng.htm
By looking at the Statistics Canada’s chart, the inflation rates have been kind of stable during October 2018 to January 2020. Thus you could pick a rate during this period for an estimate price of a core item in 2023.
ReplyDeleteFor example, in January 2020 the inflation rate was 2.4%. Let a core item’s price in Jan 2020 is $b. Then its price should be $b * 1.02 * 1.02 * 1.02 as in January 2023, i.e. multiply by 1.02 for 3 times (year 2021, 2022, and 2023).