Inflation can be a good indicator of a country’s economic health. In recent years the Canadian economy has seen low unemployment rates, which are generally considered a positive thing because it means that people have jobs to contribute to the economy. The low unemployment rate also has an impact on inflation, which is seen as a negative for the economy.
Inflation is inversely related to unemployment. When unemployment is low inflation is usually high and when it is high inflation is generally low. This inverse correlation is explained by the fact that, when there are less people in the workforce and wages increase, businesses will raise their prices to compensate. In contrast, when many people are looking for jobs, wages tend be lower and businesses lower prices to attract more customers.
Low unemployment is often viewed positively by economists, since it indicates that people are employed, bills are paid and government subsidies are supporting those in need. It can lead to increased inflation which is detrimental to the overall economy. A high inflation rate can result in a reduction of the purchasing power of currency, which may cause businesses to increase their prices. This spiral can spiral out of control.
Due to the delicate balance in the economy, it can be difficult to maintain low inflation while also maintaining high employment. A high unemployment rate can cause a drop in consumer demand which could lead to a lower price and lower inflation. This can also lead to businesses being forced to cut back on staff or reduce wages in order to compensate for lower demand. In the opposite case, if unemployment is too high, it may lead to inflation. This can be harmful to the economy.
In the end, those who can find a balance between a low rate of unemployment and lowering inflation will win the economic race. It can be challenging to find this balance, which requires careful juggling between government policies, business practices and consumer behavior.
