Canada’s inflation rate dropped to 2.8 per cent in June, the lowest level in over two years. This is good news for those who are worried about further interest rate hikes.
Statistics Canada showed a brisk decline in gasoline prices compared with June 2022 which is the biggest reason for the drop. This brought Canada’s official inflation rate down to its lowest point since March 2021. Prices of gasoline fell 21 per cent compared to the same month a year earlier.
Telecommunication services was another factor which helped push down inflation prices. Compared to a year ago, prices have decreased by 14.7%. This is largely due to Rogers purchasing Shaw mobile in April. “This was a result of both lower prices for cellular data plans and promotional pricing,” Statistics Canada said. Prices for internet access have also decreased 5% in the month of June, the largest plummet since 2019 which was primarily due to additional promotions in Ontario and Quebec.
Alternatively, food and mortgage costs were the biggest forces that contributed to higher inflation. On the one hand, food prices show no sign of slowing down inflation with increases in the 9% range. This means that ordinary groceries now cost 20% more than they did two years ago; this is the fastest increase in the price of your cart in over 40 years. According to Claire Fan, an RBC economist, despite the stubbornly high food prices, there is hope they will come down due to dissipating factors that caused prices to rise in the first place.
On July 12, The Bank of Canada, in an effort to contain and diminish inflation, decided to raise the prime rate for the tenth time in little more than a year putting the prime rate at 7.2 per cent. In the past year, mortgage interest costs are up by more than 30 per cent making it among the largest contributors to inflation; however, this not only affects homeowners but renters as well. According to Statistics Canada, rent has jumped 5.8 per cent compared to June of last year resulting in the second largest contributor to inflation rates this year.
The unrealistic goal of getting inflation back to their two per cent target was the justification the Bank of Canada needed to further tighten and restrain borrowers. The inflation rate peaked last June at 8.1 per cent and was 3.4 per cent last month. Although seeing the inflation rate between 1 and 3 percent is promising, it will be a lot harder to see any more movement if the housing market isn’t addressed properly.
To put everything in perspective we can look at where inflation would be if the major contributors were taken out of the equation. If gasoline is stripped out, the inflation rate would have been four per cent. If food is stripped out, the headline inflation rate would be 1.7 per cent; and if mortgage costs aren’t counted, we would have a 2 per cent inflation rate.
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