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The Bank of Canada is warning that unusually low inflation pressures will persist into 2016 – a new forecast that could further delay future interest rate hikes and send the Canadian dollar lower.
"Inflation is expected to remain well below target for some time, and therefore the downside risks to inflation have grown in importance," the central bank said in a statement Wednesday.
Here are five key facts about inflation, when it's a boon to the economy and when it's harmful.
Deborah Baic/The Globe and Mail
Inflation
The rate at which consumer prices are rising. It’s typically measured on an
annual basis, often by tracking a basket of commonly bought goods known as the
consumer price index.
Chris Young for The Globe and Mail
Disinflation
A slowing in the rate of inflation over time. If
the CPI rises 2 per cent in 2012 and 1 per cent in 2013, that’s disinflation.
Canada, like most developed countries, has been feeling its effects for the past
couple of years.
The Associated Press
Deflation
A sustained decline in overall prices, or the
opposite of inflation. Central banks fear deflation because it’s often a symptom
of a shrinking economy. That what happened during the Great Depression of the
1930s, making recovery more difficult and prolonged.
Adrian Wyld/The Canadian Press
Good disinflation
When intense retail price competition and
more efficient ways of doing business leads to cheaper prices. That’s good for
consumers, according to Bank of Canada Governor Stephen Poloz.
Nathan Denette/The Canadian Press
Bad disinflation
When people expect prices to barely rise
in the future, causing consumers to delay purchases or businesses to put off
hiring or raising wages.