Canadian inflation slowed in July as consumers paid less for gas, but prices for many everyday items rose at a faster pace, showing how cost-of-living pressures remain a threat to household budgets. The Consumer Price Index (CPI) rose 7.6% in July from a year earlier, Statistics Canada said on Tuesday. That was down from 8.1 percent in June, the highest inflation rate in nearly 40 years. On a monthly basis, the CPI change was the smallest since December 2021. Natural gas prices, while still well above last year, fell 9.2 percent in July from June, making the largest contribution to lower measured inflation. August brings more relief at the pump, too: The national average price for regular unleaded gas was $1.73 a liter on Monday, down 9% from the average retail price in July, according to data from Kalibrate Technologies. Other details in Tuesday’s report were less encouraging. Groceries rose at an annual rate of 9.9%, up from 9.4% in June. Rents rose 4.9 per cent, the most since 1989. And natural gas prices jumped 43 per cent, which Statscan attributed in part to the approval of rate hikes by the Ontario Energy Board. Inflation slowed to 7.6% in July. Here’s what this means for the cost of living in Canada In addition, the Bank of Canada’s average core measure of annual inflation – which strips out volatile price changes – rose to 5.3% from an upwardly revised 5.2% in June. In response, financial analysts said the central bank was certain to continue raising interest rates to dampen rising consumer prices. “It’s great that headline inflation is moving in the right direction as energy prices ease,” said Leslie Preston, managing director of TD Economics. “But there has been very little cooling in core inflation. And I think it’s a reminder that the Bank of Canada needs to keep raising interest rates to contain inflationary pressures.” Like Canada, the United States reported a slower rate of inflation last week, with the annual rate easing to 8.5% in July from 9.1% in June. In addition to gasoline, many key commodities – including wheat and lumber – have fallen this summer, as have shipping prices, offering some relief to companies and households. At the same time, inflation remains uncomfortably high and may take years to return to desired levels. The Bank of Canada predicted in July that inflation would not return firmly to its 2 percent target until late 2024. Economists expect the bank to make another strong rate hike in September, perhaps by half or more. three quarters of a percentage point. The bank’s policy rate is now at 2.5%, the highest since 2008. Governor Tiff Macklem suggested on Tuesday the central bank’s campaign to raise interest rates is not over. “We know our work isn’t done yet – it won’t be until inflation returns to the two percent target,” he wrote in an op-ed published in the Financial Post. Central bankers are trying to create a “soft landing,” in which they raise interest rates to slow demand and tame inflation, but without sending the economy into recession. “The path to that soft landing has narrowed,” Mr. Macklem said in July, citing persistently high inflation that “requires stronger action now” through big rate hikes. Canada’s economic growth has slowed significantly in recent months, while activity in the country’s housing market has sunk amid higher lending rates. The chances of a recession are rising, economists say, although the Royal Bank of Canada is the only major lender to forecast that outcome until next year. “I certainly don’t think we’re in a recession at all,” Pedro Antunes, chief economist at the Conference Board of Canada, said in a recent interview. “Part of the reason I think we might avoid a recession is because labor markets are still in remarkably good shape.” Canada shed jobs in June and July, but with a historically low unemployment rate of 4.9 percent and about a million job vacancies, it suggests employers are struggling to hire enough workers. With fewer COVID-19 restrictions, Canadians are traveling more – and those prices are rising fast. Airfare rose 26% in July from June, while accommodation prices rose 48% year-on-year. “We’ve had a lot of pandemic restrictions and really the summer of 2022 is when a lot of Canadians are taking long-awaited vacations that have probably been delayed many times,” Ms. Preston said. Conversely, as consumers shift their purchases away from bulk goods, price growth is beginning to moderate for these items. The annual rate of inflation for durable goods slowed to 7 percent in July from 7.9 percent in June. Jean-Paul Lam, an economics professor at the University of Waterloo, said it is premature to say inflation has peaked. He pointed to a number of international factors – the ongoing fallout from Russia’s invasion of Ukraine, China’s handling of COVID-19 and lingering supply chain issues – that could lift futures prices. “Inflation remains a major problem,” he said. “We’re not out of the woods yet.” Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox morning or night. Sign up today.
