Biggest inflation rate fall since 1959 raises deflation concerns
Economists fear deflation because consumers and businesses are more likely to delay purchases hoping that prices will fall further, slowing economic activity and business investments.
But more importantly, CIBC World Markets economist Avery Shenfeld said deflation often appears as the final nail in the coffin of a dying economy.
"Typically the only way you get deflation is if you've had a massive recession that has high unemployment rates and a lot of economic slack, so the conditions in which you get deflation are certainly not welcome," he explained.
One factor that may offset the potential for deflation is a recent drop in the value of the Canadian dollar. After starting the year near to parity with its American counterpart, the loonie, as the Canadian currency is popularly known, fell below 80 United States cents this week.
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