The annual rate of inflation slowed in November to 1.7% as petrol prices reduced, Statistics Canada...

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The annual rate of inflation slowed in November to 1.7% as petrol prices reduced, Statistics Canada have said. The latest data showed the rate of inflation since the start of the year. Many experts said the inflation data reinforced predictions the Bank of Canada will be in no rush to raise the interest rates target at its next policy announcement. In fact, there are expectations the central bank could wait several months before its next move due to the combination of several recent economic developments. The bank must also consider another concern a sharp deceleration in wage growth over the past six months. The national unemployment rate has been near a 40-year low for more than a year, but wage growth has slowed instead of picking up its pace in the tightened labour market. (a) Explain what is meant by the terms "cost-push" and "demand-pull" inflation and is there any evidence in the article that either of these are influencing the current rate of inflation. (b) Explain with the use of an aggregate demand and aggregate supply diagram why lower petrol prices might have contributed to a lower rate of inflation in Canada. (c) Explain why it might be seen as surprising that despite the low level of unemployment in the Canadian economy, inflation is expected to remain low and analyse the reasons that might explain this. (d) Explain the costs of inflation in general and evaluate the extent to which inflation is a particular problem for the Canadian economy. [6] [5] [4] [5] The annual rate of inflation slowed in November to 1.7% as petrol prices reduced, Statistics Canada have said. The latest data showed the rate of inflation since the start of the year. Many experts said the inflation data reinforced predictions the Bank of Canada will be in no rush to raise the interest rates target at its next policy announcement. In fact, there are expectations the central bank could wait several months before its next move due to the combination of several recent economic developments. The bank must also consider another concern a sharp deceleration in wage growth over the past six months. The national unemployment rate has been near a 40-year low for more than a year, but wage growth has slowed instead of picking up its pace in the tightened labour market. (a) Explain what is meant by the terms "cost-push" and "demand-pull" inflation and is there any evidence in the article that either of these are influencing the current rate of inflation. (b) Explain with the use of an aggregate demand and aggregate supply diagram why lower petrol prices might have contributed to a lower rate of inflation in Canada. (c) Explain why it might be seen as surprising that despite the low level of unemployment in the Canadian economy, inflation is expected to remain low and analyse the reasons that might explain this. (d) Explain the costs of inflation in general and evaluate the extent to which inflation is a particular problem for the Canadian economy. [6] [5] [4] [5]

Answer rating: 100% (QA)

a CostPush and DemandPull Inflation Costpush inflation This occurs when the costs of production increase leading producers to raise prices to maintain ... View the full answer