indicatorThe Owl

Canada’s inflation rate back above 3%

The national Consumer Price Index rose from 2.8% in June to 3.3% in July

By Mark Parsons, ATB Economics 15 August 2023 2 min read

The national inflation rate edged up last month. Consumer prices rose 3.3% in July from the same month last year, an acceleration from June’s 2-year low reading of 2.8%.

The reason for the uptick: energy prices. They fell again in July (-8.2% year-over-year), but just not as much as June’s decrease of 14.6%. The smaller decline can be attributed to gasoline prices and higher electricity prices.

Mortgage interest costs (+30.6%) continue to put pressure on the index. Without mortgage costs, the consumer price index rose 2.4%.

Food price inflation moderated, with the smallest annual increase in over a year for grocery prices. However, at 8.5%, grocery price inflation remains stubbornly high.

The Bank of Canada has been watching for signs that ‘core’ inflation (i.e. inflation that strips out volatile components) readings are softening. Two of the measures the Bank uses (trim and common) edged lower year-over-year in July, while the other (median) was flat.

In Alberta, the inflation rate remained below the national average (see chart), but accelerated from 1.9% to 2.9% due primarily to slower declines in energy prices. Gasoline prices fell 23% year-over-year (slightly smaller than the June decline), while electricity prices more than doubled from July 2022, which Statistics Canada attributes to high summer demand, base period effects, and the phasing out of policy interventions. On a year-to-date basis, inflation in Alberta has averaged 3.4% compared to 4.2% nationally.

July’s annual CPI reading for Canada was ahead of the Bloomberg consensus average of 3%. However, the uptick in inflation is not overly surprising, given that base period effects for energy prices were coming off. The Bank of Canada’s own forecast for headline inflation is 3.3% in the third quarter.

While not a great report, it’s unclear that this will be enough to sway the Bank of Canada to keep raising rates on September 6 instead of waiting to see the impacts of past increases. The Bank of Canada will be weighing other data points, including the soft July labour report and signs that consumer spending is slowing.

Answer to the previous trivia question: The annual revenue of the largest company in Alberta on the list of the 800 largest companies in Canada in 2022 was 816 times larger than the smallest Alberta company on the list.

Today’s trivia question: Which US President declared inflation “public enemy number one?”

The Consumer Price Index increased in both Canada and Alberta in July 2023

The Consumer Price Index increased in both Canada and Alberta in July 2023

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