Canada inflation rate dropped to 2.8 percent in June, reaching its lowest level in over two years. The significant decrease in gasoline prices compared to the same period last year was the primary factor contributing to the decline. This brought Canada’s official inflation rate down to its lowest point since March 2021.
The decline in gasoline prices reached 21 percent during the month compared to the previous year. Additionally, telecommunications services, particularly cellular data plans, and promotional pricing, contributed to pushing down the cost of living, falling by 14.7 percent year-on-year.
Internet access prices also saw a notable decline, decreasing by 3.2 percent over the past year and a substantial five percent in June alone, the largest one-month drop since 2019. The reduction in prices was mainly attributed to promotions in Ontario and lower prices in Quebec.
On the other hand, the cost of food and mortgage expenses had the most significant impact in driving the inflation rate higher. Food prices continued to increase at a rate of more than nine percent, resulting in nearly a 20 percent increase in the cost of food over the past two years, the highest pace in over four decades.
Mortgage interest costs also rose significantly by more than 30 percent in the past year due to the Bank of Canada’s efforts to control inflation. However, renters faced little relief, with rent increasing by 5.8 percent over the same period, being the second most substantial contributor to the higher inflation rate, just behind mortgage costs.
Despite the persistently high food prices, economists like Claire Fan from the Royal Bank of Canada remain hopeful that they will eventually come down as the global factors causing the spike gradually dissipate.
“This was mostly due to promotions in Ontario and lower prices in Quebec,” Statistics Canada said.
If gasoline is excluded from the data, the headline inflation rate would have been four percent. Removing food from the equation would result in an inflation rate of 1.7 percent while disregarding mortgage costs would bring the rate to two percent.
The central bank tends to pay less attention to the headline number, which can be easily influenced by volatile items and focuses more on core inflation, which smooths out such fluctuations. Among the three core inflation measures the bank tracks, all have declined, but one remains above five percent, and the other two are slightly below four percent.
Economists like Mendes caution that the recent declines in prices for items like cellphone services might be one-off occurrences and may not be sustainable in the long run. They predict that inflation could heat up again in the coming months once these temporary drops are no longer influencing the data.
The latest developments in Canada inflation rate have prompted experts to analyze the significance of core inflation measures. These measures, which exclude certain volatile components, provide a clearer picture of the underlying inflation trends. While all three core inflation measures showed declines, one measure remains above five percent, and the other two are just below four percent.
Economists, including Mendes, caution that the recent price drops in cellphone services, which contributed to the inflation rate decline, may not be indicative of a sustained deceleration in inflation. They warn that inflation could potentially pick up again in the coming months, especially once these “one-off” factors like gasoline and cellular services price drops are no longer affecting the data.
The impact of the inflation rate varies when certain components are excluded from the calculation. If gasoline prices are removed from the equation, the headline inflation rate would have been four percent. By excluding food costs, the inflation rate would have been 1.7 percent, while neglecting mortgage expenses would result in a rate of two percent.
The central bank’s focus on core inflation over headline inflation reflects the intention to gain a more stable understanding of the overall price trends. Volatile items like gasoline can heavily influence the headline figure, making core inflation a more reliable indicator of the economy’s underlying inflationary pressures.
As Canada navigates these fluctuations in inflation rates, analysts and policymakers will closely monitor economic data and assess the potential implications for monetary policy. The goal remains to strike a balance between controlling inflationary pressures and supporting economic growth.
Consumers, businesses, and policymakers will continue to adapt to the evolving economic landscape, and the central bank will play a vital role in addressing challenges and maintaining stability.
Experts emphasize that while some factors causing inflationary pressures may subside over time, the economy’s recovery from the pandemic and global market dynamics could introduce new variables. As a result, staying vigilant and responsive to changing economic conditions will remain crucial in the pursuit of a stable and prosperous economic future for Canada.
