Economic notes: Inflation and interest rates

by Joel Sandwith on June 14, 2011

Two interesting articles in the Globe and Mail today – both of which may have some bearing on the economic recovery that we keep hoping will take hold here.

The first is related to inflation in China, and the second has to do with interest rates here in Canada. 

As we are all aware, China has had explosive growth over the past decade.  Some would argue that all the cheaply made items we now get from China have cost us manufacturing jobs here in Canada.  Also, the amount of oil and other resources they use in China has driven prices up here in other areas, for example you may have noticed the price of gas has gone up about 30 cents a litre in the past year.  Now, China is starting to feel the effects of all of this growth and the prices they pay for things is rising more quickly than they’d like.   What does this mean for you?  Well, if prices go up, their workers may be able to demand higher wages.  And, now that we import so much from China, it might mean prices we pay for things will rise even more.

Here at home, our inflation rates are starting to rise as well.  One thing I always find interesting about published inflation rates in Canada is what is left out of the calculation, like gas and food.  I think it’s fair to say that the prices of both have gone up quite a bit in the last year and that our personal inflation rates are likely far higher than the published numbers.  So, some economists are now wondering if we need to raise interest rates to curb inflation. 

That sounds nice, but it has a huge negative impact.  Raising interest rates lowers or steadies inflation by discouraging growth – if interest rates are higher, houses sell for less, less cars are sold, and less money is invested in new or expanding businesses.  So, prices may stabilize but growth will stagnate, and more jobs could be lost.

In our bankruptcy and proposal office I have converstations every day with people who have been directly affected by these types of issues – a trickle down effect where one thing leads to another which ultimately leads to someone in Sarnia or St Thomas, London or Chatham, to be put out of work.

In some cases recovery from these things can be difficult, but we may be able to help.  If you have found yourself out of work, or making less money than you used to, and carrying debt, call us.  We can be reached toll free at 1-866-747-0660 or locally here in Sarnia at 519-344-1058 and would be happy to go over your options at no charge.

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