Part 1—Introducing the Contemporary Business Chapter World 2—Understanding the Environments of Business
A more challenging task is to determine whether the CPI adequately reflects actual inflation from the average consumer’s perspective. To address this issue, students should read two short articles that come to different conclusions about the CPI. The first (Phil Green, “Hiding Inflation,” National Post, April 29, 2010, FP11) concludes that the CPI understates inflation, while the second (Brian Milner, “Statscan Overstates CPI,” The Globe and Mail, March 9, 2011, B5) says that the CPI overstates inflation. 2. Go to the Bank of Canada website and find the latest inflation figures. Based on the latest statistics, is inflation or deflation the biggest problem today? Student answers will vary depending on the time when they answer this question. As of mid-2012, inflation was running at about 2 percent annually (as it has been for several years). During the last 50 years, inflation has routinely been a much bigger concern than deflation, but in recent years, there have been some predictions that deflation may become a problem as the global business environment continues to be fragile. 3. What do you think of Phil Green’s contention that the CPI has become a deceptive tool? Do you believe that governments are purposefully massaging the numbers? If so, explain why. Many people have concerns about the way government operates, and these concerns can lead to a readiness to uncritically accept claims that the government is doing something unreasonable. What is needed is a critical analysis of such claims, in this case, the claim that the CPI has become a deceptive tool for the government to mislead consumers about the magnitude of price increases. As noted in question #1 above, this question provides a good opportunity to require students to critically analyze an article that makes a specific claim. Whether students agree or disagree with the conclusions of the article, they must make a distinction between the facts presented and the author’s opinions. They should also consider the magnitude of the leap that is necessary to go from the facts to conclusions about what the facts mean. For example, in the article the point is made that the way inflation is measured has changed over the years, and if we use the old method, inflation is much higher than what is reported. This is a fact, but this fact raises an important point: which method (the old or the new) is most appropriate? It may not be easy to make that determination since consumer purchasing patterns and the “basket of goods” have both changed over time. The other major problem involves deciding how to address the issue of improved quality in products. The approach is to reduce the actual price of a product to take into account the increased quality that is built into the product. But how much should the price be reduced for purposes of determining inflation? And even if there is agreement on this issue, consumers still have to pay the regular price when they buy the product. Issues like these should be addressed in the students’ critical analyses.