Inflation has been higher in Quebec than in Canada since the start of the year and, far from decreasing, the gap is growing.
The consumer price index (CPI) increased 3.8% year-over-year last month, Statistics Canada reported Tuesday. This was a little less than the previous month (4%), but still much less than in Quebec where the 12-month increase in the cost of living amounted to 4.8%.
This is not the first time that inflation has been higher in Quebec than in Canada as a whole, but this has been the case more often since the pandemic. Still zero, if not slightly negative last year, the gap has started to widen again since the end of the year and has continued to widen since then, not just in a few sectors of the economy, in a generalized manner.
For Hélène Bégin, from Mouvement Desjardins, this trend is increasingly intriguing. “The more time passes, the less clear it becomes about what explains all of this,” she said in an interview with Duty Tuesday.
A month and a half ago, the economist produced an analysis of the phenomenon. She concluded that it could be attributed to a set of factors, including stronger wage growth in Quebec and its effect on prices in the service sector where it represents a third of costs.
She also recalled that this purchasing power of Quebecers had also benefited from financial support from the government in response to the increase in the cost of living, which was more generous than elsewhere in Canada. She further noted that the establishment by Ottawa of a new childcare program had helped to reduce their costs by 20% everywhere in Canada except in Quebec where such a system already existed.
“But all these factors mainly occurred last year,” observes Hélène Bégin. Their effects on inflation should normally have faded gradually this year, while the gap between Quebec and Canada is, on the contrary, going in the other direction, even if the Quebec economy is slowing down more quickly. »
The strength of the economy
His colleague at the National Bank, Matthieu Arseneau, does not expect this trend to reverse any time soon. “The unemployment rate in Quebec remains significantly lower than in the rest of Canada, which continues to give them an advantage in terms of salaries and purchasing power,” he explained Tuesday to Duty. This favorable gap in the unemployment rate should not change despite the ongoing economic slowdown, particularly due to the greater increase in immigration to the rest of Canada.
He adds that Quebecers remain relatively less indebted than other Canadians, continue to have a better savings rate and benefit from one of the most diversified economies in North America. “This gap between inflation rates reflects a generally stronger Quebec economy and we generally remain better equipped to face future headwinds.”
The end of interest rate hikes?
Lower than analysts had predicted, the new inflation measures unveiled by Statistics Canada on Tuesday report a “generalized” slowdown in monthly price growth in 7 of the 8 main components observed.
Above average, the 12-month growth in food prices notably increased from 6.8% in August to 5.9% last month, while it remained at a rate of 6% in housing, that the prices of everyday expenses, furniture and household appliances fell slightly (-1.1%) and that transport experienced a modest acceleration from 2.3% to 3.2%.
Some of these changes were the result of year-on-year effects, that is to say the exclusion from the calculation of a month of September 2022 where prices had experienced, depending on the case, a sharp increase (food) or a drop (gasoline).
The two main indicators of core inflation on which the Bank of Canada relies to measure its progress towards its 2% target — included in a range from 1% to 3% — thus slowed from 4.1% to 3.8% (CPI-med) and from 3.9% to 3.7% (CPI-tronq).
For many analysts on Tuesday, these new inflation data come on top of other measures, including declining business and household confidence, which confirms that the central bank’s war against inflation by rising interest rates is indeed weighing down economic strength. It now only has to wait for its increases of 4.75 percentage points in the cost of money since March 2022 to continue their work so that inflation continues to decline.
We will see if the Bank of Canada proves them right during its next interest rate announcement in a week.