Friday, July 17, 2009

What is the rate of inflation?

It's the number we pay the most attention to. When Statistics Canada reports that the annual rate of inflation was 2.1 per cent one month, it means that its representative basket of goods and services costs 2.1 per cent more than it did a year earlier.

If the following month's rate of inflation is lower, it does not mean that prices fell. It just means the rate at which prices increased, slowed down. In June 2009, the rate of inflation was minus 0.3 per cent. That's the first time the rate has been negative since 1994. But take out the impact of falling gasoline prices and the rate would have been 2.1 per cent.

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