Inflation within central bank comfort zone, good job right?

This is a follow up to yesterday's post.

So inflation is up a less-than-expected 1.3 in December? Great job, right??

Well, not so much when you look at the details. Everything the Bank of Canada has some control over rose, and rose quite dramatically.



Food prices rose 1.7 per cent, matching November's increase. Prices for dairy products and eggs rose 1.9 per cent while prices for non-alcoholic beverages went up 4.8 per cent. Food purchased from restaurants, sugar and confectionery, lettuce, and bakery and cereal products also rose.

Other goods that are getting more costly include communications, child care and domestic services, and paper, plastic and foil supplies.

Tuition fees, cablevision and satellite services, and recreational vehicles are also more expensive.

Homeowners' maintenance and repairs costs rose 3.3 per cent while property taxes climbed 4.3 per cent.


So why did CPI only raise 1.3 per cent?



Prices for passenger vehicles fell 3.3 per cent from last year while furniture and household textiles also saw declines.
Computer equipment and supplies and home entertainment equipment, parts and services prices continued to fall.

Overall shelter costs fell 1.7 per cent from a year earlier thanks to a 31.2-per-cent drop in natural gas prices and lower mortgage interest costs. The mortgage interest cost index, which measures the change in the interest portion of payments on outstanding mortgage debt, fell 4.9 per cent in December, Statscan said. Homeowners' replacement cost fell 1.2 per cent.

But the BOC's "policy" of a weak dollar actually increased the cost of natural gas. And most of the other costs are result of China and their fixed exchange rate, since Canada doesn't produce much computer equipment, home entertainment equipment or textiles.

So the BOC's policy is actually raising the cost of food and services, and have made houses unaffordable for those earning an average salary. They have, when you look at the big picture, punished the poor, who would otherwise be enjoying cheaper goods from China, and stable domestic prices, and affordable housing. Instead, they have benefited the rich (although not by much) by creating this bubble in housing. All the while they are applauding themselves for keeping inflation in check.