Economics

The inflation rate of Canada as per January 2010 was 1.9.  In May 2009 it was 0.7 above the prospected 0.4 rise. The Bank of Canada calculated the core measure which they recorded an increase of 0.4 which was higher than the previous years by 2.0. Prices for women cloths and replacement costs for homeowners have gone higher hence generating some offset. The unpredicted rise in rate reflects sharp rise in food prices. The high inflation rate in Canada continues to be influenced by the gyrations in the prices of energy. Without the energy element the inflation rate has traded in a stable mode. The main aim of the Bank of Canada policy has been to bring back the momentum of the economic growth and to make sure the inflation rate stands at 2. The inflation rate on monthly basis was 0.3. The core inflation rate which excludes volatile items like gasoline rose by 2 which became the first increase ever since June 2007. Pressure on interest rate on the Bank of Canada may be pressurized by the accelerating inflation. Currently the Bank of Canada holds a 0.25 rate (inflation prediction 1).  
                                                               
Future Forecast
The Bank of Canada signaled a new hawkish tone towards inflation and recognized the better performance on the consumer demand than anticipated. The latest statement on interest rate which has a record of 0.25 rate pledged to maintain it at that rate until July. There are roughly balanced risks related to inflation rate. This suggests that there is no need to be concerned about deflation and increase in prices will probably reach a level that requires quick response. The Bank predicts that the annual inflation rate will be 2. The Bank projects that the core inflation rate, which excludes volatile items would be less than 2 until September (Vieira 1).

The Banks wording change is significant as it reveals a backdrop of the economy which improves rapidly than the anticipation of the Bank .This statement surfaced immediately the economic data shown that Canadian economy was growing at the rate of 5 during the last three months of year 2009. This was a blow of expectations of the past markets of 4 gain and the central banks forecast of 3.3.  Economists predict the fourth- quarter performance will lead to a robust gain of more than 4 in 2010 in the first three months. There was an acknowledgement by the central bank of slightly higher economic gain than expected. Demand has been stimulated by the low interest rate. The central bank will hold on until July before it raises rates. Sebastien Lavoie predicts that rates will increase as from July and not September. However the issue of rate increase is debatable since economists hold that the rate will increase to 1.5 in the last six months of 2010 (Vieira 1).

The Canadian Bank aim is to maintain the inflation rate target at 2 expressed in total CPI Inflation terms. The bank uses the core inflation measure acts as a guider. It tends to be a good measure of inflation because it is assumed to predict the total CPI better. The Bank estimates a slack on the economy brought by the output gap. However this prediction is full of uncertainties addresses by the consideration of many indicators in different markets. Most of these indicators come from Statistics Canada data which contain information from regional representation of the Bank (Jenkins  David 3-10).                                                                  

Conclusion
It is important for Economists to predict inflation. These future forecasts are necessary in determining the existing monetary policy. Wrong prediction results to inappropriate monetary policy which generates inflation or recession. Even though Economists make reference to a variety of economic data, there exists no foolproof method for inflation prediction. Basically it is easier to predict inflation but difficult when we have low inflation rates. It becomes more difficult to predict inflation when it increases.