Inflation Heats Up in Canada
Inflation in Canada picked up momentum last month, driven in part by a surge in mortgage-interest costs following higher interest rates. However, there are indications that consumer prices are moderating.
The latest data from Statistics Canada reveals that the consumer price index rose by 3.3% in July compared to the previous year. This exceeded market expectations of a 3% increase and follows a cooling to 2.8% in the previous month, which was the slowest pace in over two years.
On a monthly basis, the CPI increased by 0.6%, surpassing the consensus forecast of a 0.3% rise. This follows a 0.1% increase in June. After adjusting for seasonal factors, inflation grew by 0.5% in July.
Although annual inflation has significantly cooled since peaking at 8.1% last summer, the Bank of Canada anticipates that it will remain near the 3% mark for approximately one year. It is projected to return to the central bank's target range of 1% to 3% by mid-2025. In their most recent meeting in August, policymakers decided to raise the main interest rate to 5%, marking a 22-year high.
The central bank expects a gradual decline in consumer prices but recognizes that it will take time after the sharp decline experienced over the past year.
Inflation in Canada Remains Stable in July
Two measures of core inflation closely monitored by the Bank of Canada, the weighted median and trimmed mean, remained unchanged in July, averaging 3.7%, according to Statistics Canada. Despite this stability, the bank is keeping an eye out for any signs of cooling as core inflation rates have hovered between 3.5% and 4% since September of last year.
The statistics agency highlighted that mortgage-interest costs continued to rise on a year-over-year basis, making them the biggest contributor to headline inflation.
Although energy prices decreased slightly in July compared to the previous month, the decline was not as significant as what Canadians experienced in June. Pump prices went down, but electricity prices rose sharply due to increased costs in Alberta driven by high summer demand.
Annual food-price inflation remained elevated, but the pace of growth slowed down somewhat. Prices for items like fresh fruit and bakery products experienced slower price growth.
When excluding the impact of volatile food and energy prices, Canada's Consumer Price Index (CPI) increased by 3.4% in July compared to the same period last year. This followed a 3.5% gain in June.
Prices for travel-related services either slowed or declined when compared to the previous year. This is likely due to the removal of most public health measures aimed at combating COVID-19 and the subsequent increase in travel demand.
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