There is no respite for households after the drop in headline inflation in September for a third consecutive month. Even the inflationary impact of rising interest rates is making its presence felt ever more prominently in the equation. It remains to be seen whether the Bank of Canada will take this into account on October 26th.
According to the scenario adopted by the majority, the meeting of the Bank of Canada’s monetary committee on October 26 should result in a rise in the key rate of 50 points, to 3.75%, to push it further into the interest rate zone. restrictive. More analysts, however, are arguing that the central bank will want to make another more convincing and noticeable move, citing a 75 bp tightening that would push the target for the overnight rate to 4%. Certainly, the ever more felt impact of the rise in the cost of living on households, with the increase in the cost of money becoming ever more deeply rooted in the equation, could encourage the central bank to stick to 50 points. However, it is noted that it is not without hammering the existence of a still excess demand in the economy and without pointing in the direction of the decline of the Canadian dollar against an American counterpart inflated by a rather “aggressive” Federal Reserve. . We’ll see.
Gasoline again
Statistics Canada’s September data disappointed. Admittedly, inflation as measured by the consumer price index (CPI) fell back for a third consecutive month, to 6.9%. But, excluding the volatile food and energy components, prices rose 5.4% year over year in September, from 5.3% in August.
Last month’s relief is once again mainly based on a drop in gas prices, which thus continued to decelerate (month on month) also for a third consecutive month. Still, year-over-year motorists had to contend with gas prices posting a 13.2% increase last month compared to the same month in 2021. And that the price of regular gas at the pump is currently around $1.71 per liter in Montreal and fluctuates between $1.58 and $1.78 depending on the region in Quebec. In December 2019, it stood at $1.22 in Montreal, between $1.13 and $1.32 in the rest of Quebec.
Heavy grocery bill
September’s statistics emphasize more than ever the ever-increasing pressure exerted by the grocery basket component on household budgets. With an 11.4% surge in prices for food purchased from stores measured last month, the year-over-year rise is expected to be the strongest since an 11.9% surge in August 1981.
“The increase in the price of food purchased from stores has exceeded that of the all-items CPI for 10 consecutive months, that is to say since December 2021”, adds the federal agency. And it remained generalized, with in particular a jump of 7.6% for meat, 9.7% for dairy products, 14.8% for bakery products and 11.8% for fresh vegetables.
The percentage of items with a year-on-year increase of more than 5% has risen again, to cover just under 65% of the CPI basket, Desjardins Group economists have calculated. Statistics Canada attributes this surge to, among other things, unfavorable weather conditions, rising prices for key inputs, such as fertilizers and natural gas, and geopolitical instability stemming from the invasion of Ukraine. by Russia, factors over which the Bank of Canada obviously has no control.
Rising interest rates are felt
Another salient fact, the upward pressures on the cost of money fueled by the central bank’s monetary austerity are making their inflationary impact more than ever felt. Statistics Canada points out that the Mortgage Interest Cost Index (ICIH) continued to exert upward pressure on the all-items CPI, as mortgage interest rates increased renewed or obtained. Thus, this ICIH, as measured in the CPI, rose 8.3% year over year last month, also registering a third consecutive month of increase. And this, while the correction of the residential real estate market continues unabated.
Prices for other owned accommodation expenses, which include commissions related to the sale of real estate, rose at a less pronounced pace than in August. Year-over-year growth in this position has been slowing for five consecutive months. Same observation for another real estate index, that of the replacement cost by the owner (associated with the price of new housing), which shows a less marked increase from August to September and which remains in deceleration from one year to the next all the months since May 2022.
Purchasing power eroded
As for purchasing power, which has been rather battered these days, its erosion persisted last month, with an increase of 5.2% in the average hourly wage from one year to the next. Over 12 months, it thus exceeded 5% for a fifth consecutive month. But for comparison, CPI growth was greater than or equal to 7% from May to August, falling to 6.9% in September. Without forgetting that we are talking about salary before taxes. So, 50 or 75 points?