Despite inflation setting the highest record since 1983 by reaching 8.1% in June, the outcome was better than what financial analysts expected. Their earlier predictions were that inflation would rise to 8.4%.
Though gas prices were a key driver that saw consumers pay 6.2% more in June as compared to May and up by 54.6% year over year, there has been a decline in crude oil prices in recent weeks, which has already started to affect retail pump prices. The national average price for unleaded gas was $1.87 on 19 June, compared to a peak of $2.15 earlier in the month. Besides food and energy prices, inflation rose by just 0.4% in June from May.
Transport was the second biggest driver of inflation last month, with passenger vehicles up by 8.2%. Statistics Canada reported that there was high demand for vehicles, however, supply problems were being caused by car manufacturers struggling to procure semiconductors, which was, in turn, driving up prices.
Food prices rose by 8.8% year over year while services rose by 5.2%. Grocery prices rose by 9.4% year-on-year and slowed from 9.7% in May. Dalhousie University’s director of the Agri-Food Analytics Lab, Sylvain Charlebois, is hopeful that food inflation may have peaked and that if the agriculture sector had a strong harvest this year, commodity prices may be expected to remain low as costs fall. Mortgage interest payments were also up by 1.4%, with rents also rising in the tight housing market.
With pump prices expected to drop further, financial experts are hoping that the country is close to its peak level. CIBC Capital Markets executive director of economics, Karyne Charbonneau, expressed cautious optimism to clients this week on that note. BMO chief economist, Doug Porter, also noted that the relief in the market that inflation had not risen as high as was predicted was noteworthy. He agreed that a fall in gas prices could calm headline inflation. He however added that inflation was likely to remain high throughout the rest of the year as there were segments that would remain under pressure.
Bank of Canada Governor, Tiff Macklem, has also warned that the inflation rate is likely to remain painfully high. While he did express hope that gas prices would come down, he said that inflationary pressures remained as demand was still higher than the economy’s ability to produce goods consumers wanted. He confirmed that further increases to the policy rate were likely, even after the recent 100 basis points hike to 2.5%.
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