Inflation shows its stubborn side with bump in May

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Inflation rose 2.9% on a year-over-year basis in May, up from a 2.7% rise in April.

The increase came as a surprise for many economists who are watching for the Consumer Price Index to return to the 2% target, which the Bank of Canada considers to be sustainable inflation.

Statistics Canada said May’s increase was caused by higher prices for services, specifically cellular services, rent and air fares.

“The increase in services inflation is not helpful, especially as wage growth is elevated. The risk of a strong rebound in the housing market hasn’t materialized yet, but slowing shelter inflation is welcome news,” Canadian Chamber Senior Economist Andrew DiCapua said. “Our consumer spending tracker is showing growth presenting a risk that demand is more robust. Odds of a cut in July are lower and still depend on whether the economy is weaker than the Bank’s recent forecast. Governing Council continues to be heavily data dependent, and this reversal will support their restrictive bias. The Bank will want to take a slow and measured approach, especially with inflation accelerating.”

The Consumer Price Index for June will be released on July 16, ahead of the next interest rate decision on July 24.

Lessons of past can help us improve future economy

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Canada’s economy made a significant shift last month when the Bank of Canada dropped its interest rate for the first time in four years. Now the Bank’s governor is saying he and his central bank peers are navigating a new world.

“We’ve also learned some lessons from the post-pandemic inflation, and we will take these to heart,” Tiff Macklem told the International Economic Forum of the Americas on June 12. “But the challenges of the future are rarely the same as those of the past. Supply shocks are more likely in the future. New technologies not only have the potential to increase prosperity but also to disrupt. Interest rates may be easing in many economies, but global interest rates are unlikely to return to pre-pandemic levels. The new normal won’t be the old normal. And if we’re not going back, we’ll all need to adjust.”

Macklem said supply-side economics, inflation as a common enemy and public trust in the banking system are the biggest lessons learned from the past four years.

The Bank’s next interest rate announcement is set for July 24.

Bank of Canada drops interest rate for first time in four years

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Finally. The weather forecast calls for clear skies and warm days this weekend, the HarbourCats have fireworks planned for Saturday night, after their homeopener on Friday — and the Bank of Canada has taken the initial step to reduce the pain of high interest rates.

For the first time since March 2020, the bank lowered its overnight rate. It’s now 4.75%, down from 5%, and expected to drop further in the months ahead.

“We’ve been hearing from members who have felt squeezed by the high rates and what that has meant for their customers who have been feeling squeezed themselves,” Chamber CEO Bruce Williams said. “No one wants inflation to return, but we’re hopeful this move by the bank marks a return to stability needed for businesses to make those investments that help them grow.”

The bank’s governor, Tiff Macklem, was careful not to promise future cuts, but the Conference Board of Canada stated that conditions are right for the rate to fall further.

Inflation slows again in April, raising hope for rate cut

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Make sure to circle June 5 on your calendar after Statistics Canada’s latest figures show inflation continues to slow down. The Consumer Price Index for April rose by 2.7%, compared to 2.9% in March. If you take gas prices out of the equation, the CPI was actually down to 2.5% in April.

“April’s CPI report adds weight to the thesis that interest rate cuts will begin in June,” the Conference Board of Canada said about the Bank of Canada’s next interest rate announcement on June 5. “On balance, signs suggest that June remains ‘within the realm of possibilities’ for the Bank’s first rate cut.”

Sticky inflation and high interest rates discourage investment, slowing the economy and adding to uncertainty.

Online tool tracks ongoing changes to grocery prices

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It’s been the hot-button topic for so long, it’s easy to forget just how much inflation has forever changed the cost of household budgeting.

An online tool can help track exactly how much individual goods have changed in price. The Average Retail Food Prices Data Visualization Tool is helpful to show the price increase or decrease for 105 typical grocery items. For example, the cost for one kilogram of chicken breast in BC was $18.18 in March compared to $16.71 a year earlier. Meanwhile, a 454 gram block of butter was $6.08 in March — down from $6.45 in the same month in 2023.

In BC, the item that saw the largest increase in price over the last year is infant formula, which is up 24% year over year.

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