Inflation isn’t running out of gas anytime soon
Canada’s central bank may be getting backed into a corner by Tuesday’s 3.3% inflation report from Statistics Canada.
Up until this month, inflation numbers had been moving in the right direction for a year, as the rate came down from an annualized 9.1% to 2.8% in June. However, many economists warned that it would be difficult to keep the much-quoted headline inflation number on a downward trend each month, as the decline chiefly relied on gasoline costs, which started to decrease substantially in July 2022.
Here’s a look at some of the more notable year-over-year inflation figures:
Services: up 3.3%
Food: up 7.8%
Shelter: up 5.1%
Health care: up 5.8%
Alcohol and tobacco: up 5.3%
Traveller accommodation: up 4.2%
But it wasn’t all bad news, as durable goods, clothing, transportation and household furnishings were all up less than 0.5%. The all-important core inflation measurement was down to 4.2%, falling from 4.6% in June.
With the 3.3% inflation figure substantially higher than the Bank of Canada’s 2% target (and moving in the wrong direction), the BoC will face increased pressure to raise interest rates again in September. Experts are split on the likelihood of this scenario.
BMO chief economist Douglas Porter may have done the best job of summing up the report, saying, “There’s no sense sugar-coating this one—it is not a good report for the Bank of Canada.”
However, former Bank of Canada governor Stephen Poloz said the medium-term forecast was much less dire. “We have all the ingredients of a disinflation that’s pretty orderly,” Poloz stated, as he talked about rising productivity per worker due to data sharing and artificial intelligence.
Most tellingly, he finished by concluding, “We could have a recession, we could have stagflation, we could have a soft landing, or a softish landing. If someone gives you a definitive answer, they’re making it up. The tools don’t exist to do that. As a business or as a household, prepare yourself for a range of possibilities.”