Low Inflation: Is It Really A Good Thing?

Inflation isn't a nice word to consumers.

It means an increase in the prices of goods and services and also means that consumers have less spending power.

The recent release of a report by Statistics Canada for the month of May shows that inflation fell to its lowest point in two years, offering Canadians a reason to smile. Or does it?

With the inflation rate at 1.2 per cent, its good news for those with floating rate mortgages and for lower prices on many products.

Gas prices dropped by 2.3 per cent, fresh vegetables are 7.1 per cent cheaper and electronic prices are 13 per cent less than a year ago. We have more money to spend and hopefully more money to save.

So why is this considered bad news?Low inflation reflects the weakness of the world economy, and acts as an indicator of what's happening beyond our borders.

Since the recession of 2008, many countries are facing overwhelming debt. The European community is divided between the 'haves' and 'have nots' and shows the world has not yet fully recovered from the effects of the last global recession. For the time being, Germany is the bailout king, brokering negotiations with countries like Greece and Spain to help avoid a possible collapse of the European Union.

In in the United States, the extreme downturn of the real estate market and the closure of banks reduced household wealth. The US economy is showing some growth, but the lack of household moneys is keeping a full recovery from happening quickly. As Canada's major trading partner, the slow growth of our neighbour to the south is reflected in the inflation rate.

So Canadians should count their blessings for low interest rates, steady economic growth, and a banking system in the black; not to mention that fact that the country isn't drowning in debt and in any need to be rescued by global partners.

That said, it doesn't mean Canada's economy won't be feeling the ripple effects of its major trading partners who have yet to find solid financial grounds just yet.

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