Economic 360 Automotive Industry Essay

2420 words - 10 pages

IntroductionInflation, CPIAt the beginning of this year, a relatively low inflation was recorded, however, a somewhat higher inflation rates has been posted in the last five months as energy prices climbed upwards ("Consumer Price Index Commentary, 2004"). Canada's central bank has forecasted the inflation is expected to remain stable by the end of this year and well into the year 2005. The core inflation is seen falling below 1.5 per cent in the first few months of the year before moving back up to 2 per cent by the end of 2005. Furthermore, a 1.8% increase in this year's CPI is low and needs to be raised because of the unexpected increase in crude oil prices. The price index slightly dropped a little in June from the May high but even if it did not increase any further, the year- over-year increase would be almost 10%. The new forecast calls for a 2.2% increase in Canada's all Items CPI in 2005 with a risk for a higher inflation rate (http://economics.cucbc.com/economics). In the Bank's April Monetary Policy, it expected core inflation to return to 2.0% by the end of 2005. The central bank has forecasted GDP will increase 3.2% in 2006. Both the goods and service producing sectors contributed to the GDP growth. Manufacturing activity was increase because of strong motor vehicle and motor vehicle parts production. Higher production of industrial machinery also contributed to the increase in GDP. Moreover, the retail activity grew by 1.1%. The wholesaling activity was up 0.8% as a result of the surge in sales of cars and machinery.If the CPI rises then the price of new vehicles might increase as well. That might impact on the consumer purchasing power. The CPI also reflects the "oil shock" preference for smaller, economical cars which have not been selling well recently. The increase in consumer price inflation was mainly due to higher energy prices. An unexpected increase in inflation can cause higher vehicle prices and decrease auto sales. The automotive dealership could pay more attention to a higher quality of service to attract more consumers to buy a new vehicle.Employment ForecastsAn in depth analysis of the unemployment rate in Canada proves to have very little change from its current state. The economists are seeing and forecasting very little change in the coming years. Some of the rationales behind their predictions are the rising GDP. The economic growth in Canada is steady which has been good for job creation resulting in a lowering of the unemployment rates. In the automotive industry however these rates could be deceiving. Despite a rising GDP and a constant unemployment rate, 5,900 manufacturing jobs have been lost and factory figures have hardly budged from last years figures according to CBC News (CBC News Online, 2004). Ken Georgetti of the Canadian Labour Congress says that the figures and forecasts are deceiving because the increase in jobs are primarily in part-time jobs, which usually means low-paying jobs, and manufacturing...

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