The relative stability of inflation growth in November masks the lack of respite for households, which are facing persistent pressure on the grocery bill and the cost of housing. In short, on essential goods representing two of the three largest components of the basket used to calculate the consumer price index (CPI).
Statistics Canada tells us that inflation as measured by the CPI rose 6.8% year over year in November, from 6.9% in October. A “quiet” that must largely be attributed to the volatility of gasoline prices. Moreover, excluding food and energy, prices rose 5.4% last month.
This latest figure compares with the 5.3% rise in the CPI excluding volatiles measured in October, suggesting that slower gasoline price growth has been offset by a faster rise the price of groceries, to which must be added the continuous increase in the cost of mortgage interest and rent. In fact, the three most important components of the reference basket, namely, in order, shelter, transportation and food, continued to post a stronger increase than that of the all-items CPI.
For their part, prices for food purchased from stores rose 11.4% year over year in November, a faster annual pace than the 11% in October, to remain at their highest high level since the early 1980s. “Food price inflation has remained widespread and price growth in grocery stores has exceeded that of the all-items CPI every month since December 2021,” said Statistics Canada. .
According to the Canadian average, in November you had to pay 26% more for edible oils, 19% more for non-alcoholic beverages, 17% for coffee and tea, 16.7% for eggs, 16% for cereal products, 15.5% for bakery products or 11% more for fresh fruit. Supply chain disruption, bad weather, rising input prices under the weight of soaring energy prices, war in Ukraine, rising operating costs, demand shift and substitution effect… This long sequence of stratospheric inflation in food is the result of multiple factors that maintain pressure on the costs of the entire agri-food sector, has already explained Statistics Canada.
Added to this since March are the effects of the rise in interest rates, which reached 400 basis points for the Bank of Canada’s key rate. House prices rose 7.2%, at a faster pace year over year in November, mainly due to upward pressure from the mortgage interest cost and rent. “Mortgage interest cost continued to rise at a higher pace year over year, growing 14.5% in November compared to 11.4% in October, amid the rise in interest rates. The progression recorded in November was the most marked since February 1983,” highlighted the federal agency. The Bank of Canada had already pointed out that households who renew their loans face an increase greater than those observed in the monetary tightening cycles of the last thirty years.
For its part, the rent index increased by 5.9%, after posting a rise of 4.7% in October. “The environment of rising interest rates — which can represent a barrier to home ownership — was among the factors that put upward pressure on the index. The year-over-year growth in rent prices was 5.3% in Quebec last month.
Historical inaccessibility
In a study released last week signed by Royal Bank Deputy Chief Economist Robert Hogue, this surge in interest rates since March has propelled RBC’s overall affordability measure to 62.7. % in the third quarter, “its worst level ever.” The deterioration of 14.5 percentage points has been phenomenal over the past year. In Montreal, the share of household income needed to cover housing costs was 51.9%. It was 95.8% in Vancouver, 85.2% in Toronto.
To qualify for the purchase of a reference priced home, buyers in Vancouver ($268,000), Calgary ($123,000), Toronto ($240,000), Ottawa ($149,000 ), or Montreal ($127,000) must all earn a pre-tax income of at least $100,000, added the economist. This required income jumped 30% in Montreal between the third quarters of 2021 and 2022. The increase is close to 28% in Ottawa, 27% in Quebec, where the required income reached $80,894 in the third quarter.
A little word of encouragement, accessibility would soon reach a low point, believes Robert Hogue. He expects a 14% correction in the benchmark price at the Canadian level by spring, which would add its effects to an anticipated pause in interest rate tightening by the Bank of Canada, which would be followed of a downturn beginning somewhere in the second half of 2023.