Scanned Feb 11, 2025 at 9:54:12 PM

Government Revenue and Money Creation

Creating money increases revenue in government accounts, enabling spending during COVID-19. Governments can obtain funds from the Bank of Canada by issuing bonds.Important Concept: Increasing the money supply does not simply mean printing more money.

Deflation and Demand Dynamics

Deflation: Occurs when inflation dips below 0%, resulting in negative values.Historical Context: After wars, consumer goods production shifted to military use, lowering supply and raising prices. Post-war, the return to civilian goods led to a supply surge while demand remained stable, pushing prices down.

Deflationary Spiral Explained:Example: If future prices are expected to be lower than current prices, demand drops, leading to reduced prices and production, which increases unemployment, creating a cycle of insufficient spending, declining demand, and rising unemployment.

Inflation and Economic Measures

Recent Inflation Rate: 1.8% in December 2024, largely due to a GST/HST tax break effective from December 21 to February.CPI Impacts: The Consumer Price Index (CPI) reflects taxes, leading to a decline due to the holiday tax break. Prices and package sizes are recorded in the first three weeks monthly.Although the tax break affected only one week (Dec 14-21), the CPI still decreased overall.

Projections for January: A further decline in CPI is expected, as the tax break will apply for all three weeks in January. The tax break influenced 10% of the inflation basket.

Noteworthy Trends in Pricing: For the first time, restaurant food prices saw a year-over-year decline of 1.6% in December, with alcoholic beverages also declining by 1.3%. Excluding the tax break, CPI readings indicated a 2.3% increase in December.

Future Trends and Anomalies: Since the tax break began, the gap between total CPI and core CPI has widened, a trend expected to continue until the break ends. Anomaly: Projected Trump tariffs may raise inflation in February, despite the tax break, though the extent is uncertain.