On average, throughout the 1970s, prices increased by about 8% per year. At that rate, it would take only nine years for prices to double. When inflation is around 2% per year, it takes about 35 years for prices to double.
After you’ve watched the video with your students, use this guide to explore key concepts, check for comprehension and lead a discussion.
- Inflation is a measure of how much prices for goods and services rise over time.
- A little bit of inflation is a good thing. It means the economy is growing. High inflation means that people might not be able to afford what they need to live because prices are rising faster than their incomes.
- The Bank of Canada works to achieve low and stable inflation at 2%.
Ask the following questions.
What is the consumer price index?
The consumer price index (CPI) is a virtual shopping basket of goods and services that represent the things that Canadians spend their money on. Statistics Canada tracks the average prices of these items every month to keep track of how prices are changing. This allows us to measure inflation.
What do you think is included in the consumer price index?
The CPI is made up of more than 700 different goods and services, classified into eight basic categories: health and personal care; transportation; clothing and footwear; household operations and furnishings; shelter; food; alcoholic beverages, tobacco products, and recreational cannabis; and recreation, education and reading. See Statistics Canada’s Consumer price index portal.
What happened in Canada before the Bank of Canada introduced inflation targeting?
In the 1970s and 1980s, prices rose very quickly. By the 1980s, inflation was at 10%. At that rate, it would only take 9 years for prices to double. Central banks around the world worked to manage inflation; by 1990 it was down to around 4.8% but still too high and unpredictable. In 1993, the Bank of Canada set the target at 2%.
Why is it important for inflation to be predictable?
When inflation is unpredictable, it’s hard to make financial decisions. If you’re planning a large purchase, like a car or a house, you might be paying way more or way less from year to year or even month to month. When consumers know that inflation will stay low and stable around 2%, they are more confident to make big purchases or invest their money. This helps the economy grow.
Ask the following questions.
- Have you ever experienced price increases that affected your or your family’s budget? Were they a result of inflation or of another economic pressure (e.g., supply and demand, seasonal price increases)?
- What local, national or global events do you think could affect inflation?
- Even at 2% inflation, prices still rise over time. That’s why we hear about a movie ticket or even a house costing much less 50 years ago. What happens if people’s incomes don’t rise at the same rate? What can we do to ensure that they do?
- What people or communities in Canada might be more adversely affected by rising inflation? What can governments, communities and individuals do to lessen this impact?