Canada’s inflation rate fell to 2.8 percent in June, its lowest level in more than two years.
Statistics Canada said a sharp drop in the price of gasoline compared to this time last year was the main reason for the drop, which pushed Canada’s official inflation rate to its lowest point since March 2021.
Gasoline prices were 21 percent lower during the month than in the same month a year earlier.
Another factor that pushed down the rise in the cost of living was telecommunications services, which fell 14.7 percent from a year ago.
“This was the result of both lower prices for mobile data plans and promotional prices,” Statistics Canada said.
Internet access prices drop
Rogers completed the purchase of rival Shaw in April and, at least in the short term, the result has been a flurry of promotional offers among the telecom giants.
The data agency noted that Internet access prices fell 3.2 percent last year and 5 percent in the month of June alone, the biggest drop in a month since 2019.
“This was mainly due to promotions in Ontario and lower prices in Quebec,” Statistics Canada said.
On the other side of the ledger, food and mortgage costs were the biggest single factors driving the rate higher. The cost of food continues to rise at a rate of more than nine percent. On the heels of the yearly rise through June of last year, that means the price of food has risen nearly 20 percent in two years. That’s the fastest rate of increase in the price to fill a grocery cart in more than 40 years.
Claire Fan, an economist at the Royal Bank of Canada, says that despite remaining stubbornly high, there is reason to expect food prices to fall soon because most of the global factors that caused them to rise in the first place are dissipating.
“It’s taking a little longer for the added pressure on food prices to subside nationally, but they’re down and they’re going to continue to drop,” Fan told Breaking: in an interview.
And mortgage interest costs are making things much more expensive, too, rising more than 30 percent in the past year. Mortgage rates have skyrocketed as a direct result of the Bank of Canada’s drive to rein in inflation, but there’s no relief for renters either.
Statistics Canada says rent has risen 5.8 per cent in the past year, which is the second largest single contributor to the highest inflation rate in the past year, behind mortgage costs.
Calgarian Stephanie Haynes has been dealing with a raise of more than five times that amount, and was recently told by her landlord that the rent on her two-bedroom apartment would increase by more than $400 a month from the $1,550 she was previously paying.
“I didn’t really believe it when I first got it,” he told Breaking:. “I had to read it three times to make sure…from what I was reading, I was actually in shock.”
Haynes said she spent months trying to find alternatives, but was surprised to find that prices were the same everywhere she looked. So he was left with no choice but to pay it off and then try to cut his spending where he can.
“I have enough money to survive, but not enough money to prosper,” he said. “I have to look at all my bills that are coming out and budget accordingly.”
The new inflation data comes just days after the Bank of Canada decided to raise its benchmark interest rate, for the tenth time in just over a year, as part of its campaign to fight inflation.
The bank justified its decision by saying that more adjustments were needed to bring inflation back to its two percent target. The inflation rate peaked last June at 8.1 percent and was 3.4 percent last month.
While it is an encouraging sign to see the official inflation figure fall back into the one to three percent range that the Bank of Canada is targeting, there are many reasons to think that it may be much more difficult to get inflation down from here.
If gasoline is removed from the data, the headline inflation rate would have been four percent. If food is excluded, the inflation rate would have been 1.7 percent. If mortgage costs are not counted, the rate would have been two percent.
Those are great examples of why the central bank pays less attention to the head number, because it’s easily skewed by individual items that can be volatile, and pays more attention to so-called core inflation, which smooths out the noise. Of the three core inflation measures the bank tabulates, all are down, but one is still above 5 percent, while the other two are just below 4 percent.
Royce Mendes, an economist at Desjardins, says it’s too early to think that the policy rate will simply fall back to the target on its own, since the June drop was based on one-offs that probably can’t be repeated.
“The latest moves have been based on sharp declines in the prices of cell phone services, which offers no guarantee that this slowdown can be sustained,” he said. Mendes said he believes inflation could rise again in the coming months once “one-time” price drops for things like gasoline and cell services fade.
Andrew Grantham, a senior economist at CIBC, says he wouldn’t be surprised to see the official inflation rate rise a bit more in the coming months, once comparisons with the previous year become less favourable.
“Headline inflation is likely to rise above 3 percent again in the coming months as the underlying effects of lower gasoline prices become less generous,” he said.