What is Consumer Price Index?
The Consumer Price Index (CPI) is an indicator of changes in consumer prices experienced by Canadians. It is obtained by comparing through time, the cost of a fixed basket of commodities purchased by consumers. Since the basket contains commodities of unchanging or equivalent quantity and quality, the index reflects only pure price change
What is GDP and why is it so important?
The gross domestic product (GDP) is one the primary indicators used to gauge the health of a country's economy. It represents the total dollar value of all goods and services produced over a specific time period - you can think of it as the size of the economy. Usually, GDP is expressed as a comparison to the previous quarter or year. For example, if the year-to-year GDP is up 3%, this is thought to mean that the economy has grown by 3% over the last year.
Measuring GDP is complicated (which is why we leave it to the economists), but at its most basic, the calculation can be done in one of two ways: either by adding up what everyone earned in a year (income approach), or by adding up what everyone spent (expenditure method). Logically, both measures should arrive at roughly the same total.
The income approach, which is sometimes referred to as GDP(I), is calculated by adding up total compensation to employees, gross profits for incorporated and non-incorporated firms, and taxes less any subsidies. The expenditure method is the more common approach and is calculated by adding total consumption, investment, government spending and net exports.
As one can imagine, economic production and growth, what GDP represents, has a large impact on nearly everyone within that economy. For example, when the economy is healthy, you will typically see low unemployment and wage increases as businesses demand labor to meet the growing economy. A significant change in GDP, whether up or down, usually has a significant effect on the stock market. It's not hard to understand why: a bad economy usually means lower profits for companies, which in turn means lower stock prices. Investors really worry about negative GDP growth, which is one of the factors economists use to determine whether an economy is in a recession.
GDP = C + G + I + NX
where:
"C" is equal to all private consumption, or consumer spending, in a nation's economy
"G" is the sum of government spending
"I" is the sum of all the country's businesses spending on capital
"NX" is the nation's total net exports, calculated as total exports minus total imports. (NX = Exports - Imports)
Canada GDP growth at 2.3%: IMF
Paul Vieira, Financial Post · Monday, Jan. 24, 2011
OTTAWA — The International Monetary Fund boosted its growth outlook on Tuesday for the global economy this year on the heels of strengthening U.S. consumer demand and robust emerging markets although it warns financial stability “is still not assured” given heightened risks over government debt in Europe.
The forecast for Canada, however, was less upbeat. The IMF ratcheted downward the outlook for Canadian GDP growth in 2011 by 0.40 percentage points, to 2.3%, the single biggest downgrade for an individual country. However, Canada is still expected to be the second-fastest growing economy among industrialized countries, trailing the United States, with 3% expansion, but surpassing output in Germany, France and Britain.
Overall, the IMF said the global economy is set to expand 4.4% in 2011, a slight upgrade from its 4.2% expectation in the fall, mostly due to a sharp upgrade to its U.S. outlook, to 3% from 2.3%.
John Lipsky, first deputy managing director for the IMF, said the growth was “impressive” given the 10-20 year averages for global growth were about 3.5%, but added much was due to emerging markets.
“Emerging economies have represented the driving force of the post-crisis global expansion: strong domestic demand — buoyed by an accommodative policy stance and renewed inflows of foreign capital — has powered a very robust recovery, even providing some boost to advanced economies,” Mr. Lipsky said Monday at the OECD’s Latin American Forum in Paris, before the report was released.
The Washington-based organization also warned countries need to look beyond extraordinary fiscal policy and rock-bottom interest rates to boost growth, and that means addressing structural problems in respective economies – from high levels of public debt to enacting financial system reform.
The latest update to the IMF outlook acknowledges the global economy performed better than it previously expected in its fall report, owing to stronger consumption in the United States and Japan.
“Signs are increasing that private consumption — which fell sharply during the crisis — is starting to gain a foothold in major advanced economies” the IMF said in a summary, provided to journalists prior to its official release early Tuesday morning.
The update emerges as policy makers and business leaders gather in Davos, Switzerland for the annual World Economic Forum, in which delegates will hear about how the global economy is entering a “super cycle” of historically high growth.
Furthermore, the Federal Reserve begins two days of meetings Tuesday, with a rate statement to be delivered Wednesday that analysts suggest will provide a more upbeat view about the U.S. recovery — although remain cautious given high unemployment and reiterate plans to fully execute its US$600-billion asset-purchase plan. The United States is set to release Friday an early estimate of fourth-quarter GDP growth, with analysts expecting a 3.5% annualized gain for the October-to-December period.
“The U.S. economy continues to generate solid economic growth,” said economists at Wells Fargo Securities, adding data for retail sales and industrial production are suggesting a “consumer that is spending a little more readily and a manufacturing sector that is being re-energized by growing-end demand.”
The increased optimism stems from a new fiscal package Congress approved in late 2010 which extends the Bush-era tax cuts for another two years and provides a cut in payroll taxes.
For Canada, growth is set to hit 2.3% in 2011, or just below the Bank of Canada’s recent call for a 2.4% advance. Central bank governor Mark Carney warned last week Canada won’t “fully benefit” from the rebound in U.S. growth due to the high loonie and tepid productivity growth. Meanwhile, in 2012, the Canadian economy is seen picking up speed, advancing 2.7%, matching the U.S. performance.
As a whole, the IMF said advanced economies are expected to do slightly better this year, with expansion of 2.5%. Emerging economies will continue to be the global economy’s growth engine, with an expected 6.5% advance in 2011.
The big risk to the outlook is the situation in Europe, where sovereign debt risks “have on balance intensified” and spilled over.
Among the most pressing needs to ensure a robust recovery, the IMF added, is a solution to “alleviate financial stress in the euro area and to push forward with needed repairs and reforms of the financial system.
“Comprehensive, rapid and decisive policy actions are required to address downside risks,” it said, echoing comments from Mr. Carney last week.
http://www.financialpost.com/news/Canada+growth/4158929/story.html#ixzz1C39TeX3D