OTTAWA-
Economists predict Canada’s inflation rate may have peaked in June as high gasoline prices pushed up the cost of living 8.1 percent from a year ago, its highest pace in almost 40 years.
Statistics Canada said on Wednesday June’s annual inflation rate was higher than May’s 7.7 percent and marked the largest annual change since January 1983, when it hit 8.2 percent.
The rise in the consumer price index for the month was due in large part to higher gasoline prices, which soared by more than 50 percent compared to a year ago.
Excluding gasoline, the country’s inflation rate was 6.5% in June from 6.3% in May.
CIBC Senior Economist Karyne Charbonneau said the headline inflation reading was lower than expected, calling it “the first negative inflation surprise in many months.”
“With gasoline prices expected to drop next month, we may finally have seen peak inflation,” Charbonneau said in an email.
According to retail analytics platform Kalibrate, gasoline prices have fallen from a high of $2.14 a liter in mid-June to $1.88.
Douglas Porter, chief economist at the Bank of Montreal, said June’s inflation reading was “better, but not good.”
“There is likely to be some relief in next month’s report as gasoline prices are currently down about nine percent in July,” he said in a report. “However, the concern is that other costs remain strong.”
“While a pullback in pump prices could calm headline inflation next month, we will need to see the core give way for inflation to really peak.”
RSM Canada economist Tu Nguyen said she believes it is still premature to declare that Canada has reached peak inflation.
Nguyen said there are still many uncertainties when it comes to global pressures on inflation, including the war in Ukraine and an ongoing pandemic that could shut down overseas manufacturing in places like China.
In its latest monetary policy report, the Bank of Canada forecast that inflation will hover around 8 percent for the next several months before it starts to ease.
Last week, the Bank of Canada stepped up its efforts against rising inflation when it raised its key interest rate by a full percentage point, taking it to 2.5 percent. It was the largest single increase since 1998.
Statistics Canada is scheduled to release its July inflation report on August 16 ahead of the Bank of Canada’s next interest rate decision scheduled for September 7.
CIBC said the Bank of Canada will then decide between a half percentage point increase or a three-quarter percentage point increase and will likely lean towards the latter. But Charbonneau said June’s inflation reading “may increase the chance that they will choose the smaller of the two steps.”
Porter also predicted that the Bank of Canada will raise its key interest rate by half a percentage point in its next decision.
However, Nguyen said he still expects the central bank to opt for another large rate hike in September.
“I think we should expect another big rate hike in September, whether it’s 75 basis points or even 100 basis points,” he said. “And the reason for that is…there is no question that prices are still going up very, very fast.”
In addition to high food and gasoline prices, Canadians experienced rising prices for travel-related services as public health restrictions eased and travel increased. Accommodation prices are up around 50 percent across the country compared to a year ago.
“The return of sporting events, festivals and other large in-person gatherings has resulted in increased demand for accommodation, particularly in major urban centers,” Statistics Canada said.
On a monthly basis, the consumer price index rose 0.7 percent, largely due to higher prices for gasoline and travel accommodation.
After declining slightly in May, air freight costs rose 6.4 percent month on month.
Canadians also continued to see higher food prices, with the cost of food rising 8.8 percent compared to June last year.
Among food items, the largest increase in prices was for edible fats and oils, which rose 28.8 percent year over year.
This is what happened in the provinces (previous month in parentheses):
- Newfoundland and Labrador: 8.2 percent (8.0)
- Prince Edward Island: 10.9 percent (11.1)
- Nova Scotia: 9.3 percent (8.8)
- New Brunswick: 9.1 percent (8.8)
- Quebec: 8.0 percent (7.5)
- Ontario: 7.9 percent (7.8)
- Manitoba: 9.4 percent (8.7)
- Saskatchewan: 8.1 percent (7.0)
- Alberta: 8.4 percent (7.1)
- British Columbia: 7.9 percent (8.1)
The agency also released rates for major cities, but cautioned that the figures may have fluctuated widely because they are based on small statistical samples (previous month in parentheses):
- St. John’s, Netherlands: 7.5 percent (7.1)
- Charlottetown-Summerside: 11.5 percent (11.7)
- Halifax: 9.1 percent (8.4)
- Saint John, N.B.: 9.0 percent (8.6)
- Quebec City: 7.4 percent (6.7)
- Montréal: 7.6 percent (6.9)
- Ottawa: 7.7 percent (7.6)
- Toronto: 7.4 percent (7.4)
- Thunder Bay, Ontario: 6.6 percent (4.9)
- Winnipeg: 9.4 percent (8.5)
- Regina: 8.1 percent (7.2)
- Saskatoon: 7.6 percent (6.6)
- Edmonton: 8.5 percent (7.1)
- Calgary: 9.6 percent (8.0)
- Vancouver: 7.7 percent (8.2)
- Victory: 8.4 percent (8.2)
- Whitehorse: 7.7 percent (7.2)
- Yellowknife: 8.3 percent (7.5)
- Iqaluit: 4.3 percent (3.5)
This report from The Canadian Press was first published on July 20, 2022