Inflation
Quick Definition
The rate at which the general price level of goods and services rises over time.
Full Explanation
Inflation is the sustained increase in the general price level of goods and services in an economy over time, eroding the purchasing power of money. In Canada, inflation is measured by Statistics Canada using the Consumer Price Index (CPI). The Bank of Canada targets a 2% annual inflation rate. High inflation reduces the real value of money — meaning your savings buy less over time — and typically leads the BoC to raise interest rates to cool the economy. For borrowers, moderate inflation can be beneficial as fixed debt payments become cheaper in real terms.
Related Terms
Bank of Canada
Canada's central bank, responsible for monetary policy and setting the overnight rate.
Overnight Rate
The interest rate at which major banks lend each other money overnight.
Prime Rate
The base lending rate banks use, tied to the Bank of Canada overnight rate.
Consumer Price Index (CPI)
A measure of the average change in prices of a typical basket of consumer goods.
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