Inflation is a top of the fold topic at the present time. It is a measure of the marketplace’s response to changes in the supply and demand for goods and services transacted in the market place.

Earlier this week Statistics Canada reported that Canadian inflation as measured by the Consumer Price Index

The Consumer Price Index (CPI) rose 2.9% on a year-over-year basis in January, following a 3.4% gain in December. … On a monthly basis, the CPI was unchanged in January, following a 0.3% decline in December. On a seasonally adjusted monthly basis, the CPI fell 0.1% in January, the first decline since May 2020.

Statisticians and economists measure the volatility of prices in different ways for different purposes. Headline “inflation” is commonly reported as the change of the Consumer Price Index, an index for a basket of goods and services purchased by the average consumer as defined by extensive surveys. Although domestic consumers account for a large share of the measured economy – i.e. the total value of goods and services transacted in the year, in the country. Overall price changes in the measured economy are measured as changes in the implicit price index for the total economy.

Much technical discussion of the “best” measure of inflation is in the formal literature with much dependent of the policy purpose for its determination. And there are a dozen or so candidates for the measurement of price volatility. (One aside, if measured inflation is zero, the market economy is probably dead or at a unique and improbable point of total balance between supply and demand, with zero innovation and discovery of new resources. Dead.)

The figure below shows that three different measures of price volatility have similar profiles since 2010: low rates after the 2008 global financial crisis generally around a CPI of 2 to 2.5 percent until the covid-19 economic shut down, effectively an engineered economic near-death coma. The economic snap-back in the first half of 2021 sent strong shock signals through the price mechanism to businesses to adjust business models and strategies in response to the supply chain issues exposed during the covid-19 shut down. An indicator of the resilience of entrepreneurs, governments and civil society to the economic shock is the fall in price volatility and movement towards the rebalancing of the supply chain.

The associated spreadsheet is attached.