Canada’s inflation appears to have finally peaked, but it’s still too high to deter the Bank of Canada from raising rates significantly in September, economists say.
Statistics Canada reported on Tuesday that year-on-year inflation slowed to 7.6% in July. The slowdown was largely caused by lower gas prices, even as food, rent and travel prices continued to rise.
Economists had pointed to June’s nearly 40-year high of 8.1% as the high-water mark for overall inflation, which had been rising each month since June 2020.
In further indication that price gains are slowing, officials said July’s month-on-month rise was the smallest since December 2021.
Still, inflation remains well above the Bank of Canada’s 2% target.
Bank of Canada Governor Tiff Mackrem made just that point in an op-ed published by the National Post on Tuesday, saying inflation was “still too high” and stressing the central bank’s role in keeping inflation in check.
Mackrem said he understands that rising interest rates are exacerbating economic hardships for Canadians, but the best way to curb rising costs of living is to raise borrowing costs.
“By raising borrowing costs in the short term, we can lower inflation in the long term. High inflation hurts us all, so this will ultimately be better for everyone. It robs us of our purchasing power and makes it difficult to plan our spending and savings,” said Macklem.
The Bank of Canada hopes a series of rate hikes will weaken demand in the economy enough to slow the pace of inflation.
“We need higher interest rates and inflation to slow people’s spending patterns, but we haven’t really done that much,” said TD chief economist Beata Karranci, who said Canadian consumers noted that spending increased at a faster pace. The pace is faster than the United States in the first half.
Central banks have been keeping an eye on core inflation indicators, which have been less volatile than the headline numbers and have remained relatively unchanged since June, Karranchi said.
Economists are widely expecting the Bank of Canada to raise key interest rates by three-quarters of a percentage point on Sept. 7.
Whatever the central bank plans, Trevor Tombe, an economics professor at the University of Calgary, said the latest inflation data is unlikely to change that plan, citing interest rate decisions and the impact on the economy. pointed out that there is a time lag in
“We are not going to accelerate or slow down our plans solely based on what we see in this report,” said Tombe. “It’s important to remember: Monetary policy takes a long time to get through (through the economy).”
Statistics Canada’s report reflects the latest US inflation data, with inflation falling to 8.5% in July from 9.1% the previous month.
Americans are still absorbing greater price increases than they have experienced in decades, including higher prices for food, rental housing, and health care.
In Canada, gasoline prices rose 35.6% year-on-year in July, down from a staggering 54.6% rise in June. Still, the Canadian is feeling a pinch of inflation, with food costs rising 9.9% year-on-year, the fastest pace since August 1981.
Tu Nguyen, an economist at accounting and consulting firm RSM Canada, said inflation was “rife” across the economy, meaning Canadians still have a long way to go before the pressure on their finances is significantly eased. said to do.
“It will take some time before families can breathe a sigh of relief. Wage growth continues to lag inflation, resulting in households losing purchasing power,” Nguyen said in a note.
Average hourly earnings in July were up 5.2% compared to a year ago.
Statistics Canada said the downward pressure on pump prices was due to factors such as continued concerns related to the global economic slowdown, increased COVID-19-related public health restrictions in China, and a slowdown in gasoline demand in the United States. I said it was due to the combination.
Bakeries are up 13.6% from last year, amid rising input costs as Russia’s invasion of Ukraine continues to put upward pressure on wheat prices amid massively higher food prices. Other food prices also surged, including eggs, which rose 15.8% from last year, and fresh fruit, which rose 11.7%.
As mortgage costs rise as interest rates rise, the report notes that rent prices are accelerating, rising faster in July than the previous month.
Airfares increased about 25% in July compared to the previous month as more Canadians traveled during the busy summer season. Prices for traveler accommodation have risen nearly 50% from a year ago, the biggest increase in Ontario.
Nojud Al Marez
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