Two years of growth
Since inflation reappeared on the Canadian landscape two years ago, the cumulative increase in the cost of living has now reached 11.3%. This is an average increase in the main components of the CPI which reflects a different reality depending on the consumption habits of each household (see table).
During the same period, the increase in average hourly wages reached 10.3%, indicating that the purchasing power of households was reduced by rising prices.
The case of Quebec
In Quebec, the inflation rate reached 4.6% in August, a level higher than the Canadian average of 4%. Prices are increasing more quickly in Quebec, a trend that has been observed for several months, according to the general director of the Institut du Québec, Emna Braham.
“During the pandemic, salaries also increased faster than inflation in Quebec,” she explains. But more recently it has been the opposite, with both increasing rapidly. »
If we go further back in time, we see that higher wage increases in Quebec have helped maintain the purchasing power of Quebec households, but “it is less clear currently,” she says.
“Everyone is faced with inflation, but not everyone has a salary increase. »
The annual inflation rate was higher than the national average in Quebec (+4.6%) and Alberta (+4.3%), while it was lower than this average in Ontario (+3.8%). %) and in British Columbia (+3.8%).
For the second month in a row
The acceleration in inflation in August exceeded the forecasts of economists, who expected a 3.8% increase in the consumer price index. At 4%, the annual inflation rate is currently twice as high as the 2% target that the Bank of Canada is trying to achieve with its interest rate increases.
The increase in the CPI is mainly due to gasoline prices, according to Statistics Canada, as well as the price of rent and mortgage interest. But prices have increased everywhere, emphasize economists at the National Bank. “The resurgence of inflation in Canada this summer is not limited to energy,” say Matthieu Arseneau and Alexandra Ducharme. From July to August, all eight major price categories increased at an annualized rate above the Bank of Canada’s target. »
It slows down at the grocery store
After an annual increase of 8.5% in July, the prices of food purchased in grocery stores increased by 6.9% in August. Food price growth remains high, but is slowing. On a monthly basis, prices in grocery stores fell by 0.4% in August, underlines Statistics Canada. Prices of fresh fruit, chicken and cereals are increasing more slowly while inflation is accelerating for beef (+11.9%), coffee and tea (+9.0%), and sugar and confectionery (+10.9%).
Core inflation is also climbing
Headline inflation as measured by the CPI doesn’t tell the whole story. Measures of core inflation, or rising prices without the most volatile items like gasoline and food, are all going in the wrong direction.
“The inflation figures for August seem even worse when we dig deeper into the data,” said Randall Bartlett, Desjardins economist. The two measures closely followed by the Bank of Canada, median CPI and trimmed CPI, increased by a percentage point on a three-month annualized average in August, he notes, to reach 4, respectively. 4% and 4.6%. “This is the fastest pace of short-term basic price growth since April,” he said.
Finger on the trigger
The inflation picture for the month of August does not make the task of the Bank of Canada easier, which has said it is ready to start raising interest rates again if prices remain at their current level. This would be a mistake, according to economists at the National Bank. “Given the delay in transmission and the extremely restrictive level of monetary policy, we continue to believe that further rate increases are perilous,” they believe.
The slowing economy and rising unemployment rate should eventually reduce inflation, but “the likelihood that the bank will pull the trigger again has increased significantly this morning,” they said.
The next rate decision is October 25. By then, the leaders of the Bank of Canada will have had a new portrait of the labor market and another reading of inflation to digest. The probability that the key rate will increase further remains high, estimates Derek Holt, chief economist at Scotiabank. Those who believe that inflation is under control and that the Bank of Canada is done with rate hikes are wrong, he says in his analysis.