Inflation rises again, to new 39-year high of 8.1%

Cost of living increasing at its fastest pace in decades

Cbc.ca
July 21, 2022
Pete Evans

Canada's inflation rate rose to 8.1 per cent last month, Statistics Canada says, the fastest annual increase in the cost of living in decades.

The data agency said gasoline was the biggest single contributor to the overall rate going up, as pump prices were up by 54.6 per cent compared to the same month a year ago.

If gasoline is stripped out, the inflation rate would be 6.5 per cent.

Another major source of inflation this year has been food prices, which rose by 8.8 per cent in the past year. That's the same pace of increase seen the previous month, but economist Tu Nguyen with audit, tax and consulting agency RSM Canada says it's too soon to conclude that food prices may have peaked.

"Part of that can be attributed to the fact that Canada consumes more domestically grown food in the summer, which helps keep costs down," she said.

Higher prices for travel and tourism
On top of higher prices for food and gasoline, the data agency documented a surge in demand and prices for travel-related services.

"The return of sporting events, festivals and other large in-person gatherings has resulted in higher demand for accommodation, particularly in major urban centres," Statistics Canada said.

Prices for accommodation rose by about 50 per cent across the country compared with a year ago, and the cost of air transportation rose by 6.4 per cent in the month, and is up by 25 per cent compared to a year ago.

Judy MacDonald owns a small hotel in Prince Edward Island, the Barachois Inn. Like many in the industry, she lost about 90 per cent of her business in 2020, and even last year was only about half what she'd normally see.

This year, feverish demand for tourism means she's on track for perhaps her best year ever, but that hasn't made her immune from feeling the pinch of inflation to the cost side of her ledger. To cover the rising cost of electricity and other utilities, she's had to raise her prices by about $10 per room.

"There is a lot of pent-up need right now and I'm hoping that that is going to continue," she told CBC News in an interview. "But costs are getting up there and I would like to see some of that come down."

More rate hikes expected
Although the 8.1 per cent figure is the fastest annual increase since 1983, economists had been expecting the rate to come in even higher, with a consensus of those polled by Bloomberg forecasting a rate of 8.4 per cent.

"Today's result is better, but not good," is how economist Doug Porter with Bank of Montreal described it.

"It's really saying something when an 8.1 per cent inflation rate is greeted with a modicum of relief in financial markets because it wasn't quite as awful as expected."

Despite yet another multi-decade high in inflation, Wednesday's data will likely come as a small relief to the Bank of Canada, which has been undertaking an aggressive campaign of raising interest rates to rein in the runaway cost of living.

After raising its benchmark rate by the biggest amount in 20 years last week, the bank is forecast to keep raising lending rates, although perhaps not as aggressively as before.

"We expect the bank to continue hiking in September, albeit with a more moderate 50-point move at that time," Porter said.

Shilpa Mishra, managing director with BDO Canada, says the inflation number coming in lower than experts were expecting is cautious good news for consumers and businesses, but she says as long as the rate is double or triple what the central bank likes to see, more rate hikes are likely.

"It's like a slow climb on a roller-coaster ride," she said in an interview. "You're not sure when you are going to reach the top."

Economist Stephen Brown with Capital Economics says there are reasons to be hopeful that inflation may be near its peak.

"The June data showed some encouraging signs, with the monthly price gains slowing across almost every category," he said.

"Inflation will begin to fall in the coming months but, with the Bank of Canada intent on preventing further rises in inflation expectations, this will not stop it from raising interest rates at the September and October policy meetings."