March 28, 2023Money Education Financial literacy Economy Lifestyle Monthly commentary
Cauliflower’s Premium Rebrand With Rise in Inflation
As we've made our way out of the pandemic, we've all noticed a rise in inflation over the past few years. Most recently, we paid $7.99 for a head of cauliflower at the local grocery store. So, if the Bank of Canada has a stated target for inflation of close to 2 percent[i], why didn't they raise rates again on March 8[ii]? Isn't inflation still a genuine reason for concern when everything we buy seems to cost significantly more?
It seems like global economies are still not growing, and the "reduction" in inflation has been primarily due to a reduction in energy prices. In Canada, the economic growth at the end of 2022 came in lower than predicted. Inflation hurts household spending as families continue to struggle with the cost of living.
According to the Bank of Canada, the reported inflation rate sits around 6% despite the continued elevated cost of food and housing. With the upcoming $0.14/litre carbon tax hike, we'll look for more significant numbers at the pumps as of April 1, 2023. The inbound 6.3% tax rate hike on alcohol will also take more of a bite out of our collective coffers. So why did they decide to keep rates the same?
If all this information seems contradictory to you, you're not alone. When the Bank of Canada's primary tool for fighting inflation is the overnight rate policy, how can they leave rates alone despite what appears to be continued high inflation?
When inflation stops rising, prices are no longer increasing at the same rate. However, prices will continue going down. Instead, they may stop rising at the same rate as before or stabilize at a new level.
This is because various factors, not just inflation, determine the price of goods and services. For example, the cost of raw materials, production costs, and labour costs can all impact the price of a good or service. Even if inflation stops rising, these other factors can increase prices.
Businesses may wait to adjust their prices in response to changes in inflation. They may wait to see if the changes in inflation are temporary or long-lasting before adjusting their prices. In some cases, businesses may also try to maintain their profit margins by keeping prices at the same level, even if inflation has stopped rising.
While inflation is an essential factor that can impact prices, it's not the only factor. Other items can influence prices, and businesses may wait to adjust their prices in response to changes in inflation.
So the future of rate movement coming from the Bank of Canada has yet to be set. We will have to wait and see how this all plays out before there is any predictability as to where rates will go. But until then, we'll enjoy the rebranding cauliflower has received to its premium status.
If you're concerned about how inflation or the rise in the cost of living is affecting you, feel free to give us a call to discuss your overall financial plan and its relevancy in this high-rate environment.
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