Canada’s year-on-year inflation rate slowed to 7.6% in July, with the slowdown largely due to falling gasoline prices, even as food, rental and travel prices continued to rise. .
Economists pointed to June’s nearly 40-year high of 8.1 percent as a likely spike in the headline inflation rate, which had previously risen every month since June 2020.
Although gasoline prices rose 35.6% in July compared to a year earlier, that was down from a whopping 54.6% increase in June. Statistics Canada reported Tuesday. Still, Canadians are feeling the effects of inflation, with food costs rising 9.9 percent compared to a year ago, the fastest pace since August 1981.
In another indication that price gains are slowing, the agency said July’s month-over-month increase was the smallest since December 2021.
The trend also echoes the most recent inflation data from the United States, where the rate of price increase fell to 8.5 percent in July from 9.1 percent the previous month, also largely due to a drop in prices at the pump.
Americans are still absorbing price increases larger than in decades, with increases in the prices of groceries, rental housing and health care costs.
Tu Nguyen, an economist at accounting and consulting firm RSM Canada, said the “penetration” of inflation throughout the economy means there is still a long way to go before the pressure on Canadians’ finances eases substantially.
“It will take a while for households to breathe a sigh of relief. Wage growth continues to lag inflation, causing households to lose purchasing power,” Nguyen said in a note.
Median hourly wages increased 5.2 percent in July compared to a year ago.
The agency said the downward pressure on gas station prices was due to a combination of factors, including ongoing concerns related to a slowing global economy, increased public health restrictions related to COVID-19 in China and the slowdown in gasoline demand in the United States.
Still, inflation is well above the Bank of Canada’s two percent target.
The central bank is keeping an eye on the latest inflation reading as it prepares to make its next interest rate announcement on September 7, when it is expected to raise its key rate by three-quarters of a percentage point.
Although it appears to have peaked, inflation remains too high, Bank of Canada Governor Tiff Macklem said in an op-ed published by the National Post on Tuesday, stressing that the central bank must take action to further cool more things.
“Our goal is to cool down the economy enough to bring inflation back to the two percent target,” he said.
“We don’t want to stifle demand, we want to slow its growth. That’s what we call a soft landing. By moving hard to raise interest rates now, we’re trying to avoid the need for even higher interest rates and a more sharp stopping the road.”
The central bank is paying more attention to core measures of inflation, which are less volatile than the headline figure and have been relatively flat since June, said Beata Caranci, chief economist at TD.
Consumer spending has been relatively strong in Canada despite high inflation, he said, with consumer spending in the first half of the year rising at twice the pace of the US.
“Higher rates and inflation are needed to make people reduce their spending patterns, which, in fact, has not happened to a greater extent,” he said.
University of Calgary economics professor Trevor Tombe said the latest inflation data is unlikely to change the Bank of Canada’s plans for its next rate decision, noting there is a lag between decisions about interest rates and their effect on the economy.
“They’re not going to speed up or slow down their plans, just based on what we’re seeing in this report,” Tombe said. “It’s important to remember that monetary policy takes a long time to work its way through 1/8 and the economy 3/8.”
Among food items that have become considerably more expensive, goods rose 13.6 percent from last year amid higher input costs as the Russian invasion of Ukraine continues to put upward pressure on wheat prices. . Prices of other food products also rose faster, including eggs, which were up 15.8%, and fresh fruit, up 11.7% from last year.
As the costs of higher-interest-rate mortgages rise, the report notes that rental prices are accelerating, rising faster in July than in the previous month.
With more Canadians traveling during the busy summer season, airfares increased about 25 percent in July compared to the previous month. Traveler accommodation prices are up nearly 50 percent from a year ago, with the largest price increases in Ontario.
This is what happened in the provinces (previous month in parentheses):
— Newfoundland and Labrador: 6.9 percent (8.2)
— Prince Edward Island: 9.5 percent (10.9)
— Nova Scotia: 8.7 percent (9.3)
— New Brunswick: 8.0 percent (9.1)
— Quebec: 7.3 percent (8.0)
— Ontario: 7.6 percent (7.9)
— Manitoba: 8.8 percent (9.4)
— Saskatchewan: 8.1 percent (8.1)
— Alberta: 7.4 percent (8.4)
— British Columbia: 8.0 percent (7.9)
This report from The Canadian Press was first published on August 16, 2022.