2023-07-18 12:39:45
The slowdown in inflation continued in June, when the consumer price index in Canada stood at 2.8%, down from the rate of 3.4% measured in May.
What there is to know
The inflation rate in Canada was 2.8% in June, down from last month.
It was the drop in gas prices that had the most impact in June.
Inflation in the price of food purchased at grocery stores, which remained very high at 9.1%, and the sharp rise in mortgage interest costs (+30% year-on-year) contributed the most to inflation in June.
Core inflation – around 4% – remains above the Bank of Canada’s target.
With this decline, the inflation rate is approaching the Bank of Canada’s target range – around 2% – for the first time in more than two years. A news that delighted the Minister of Finance, Chrystia Freeland. “This is the lowest rate in two years,” she said on a conference call from New Delhi on the sidelines of the G20 meeting.
While the slowdown in inflation was fairly widespread, it was once once more the drop in gas prices that had the most impact in June. Excluding gasoline prices, the overall inflation rate in June would have been 4%, down slightly from the rate of 4.4% measured in May.
Grocery price inflation, which remained very high at 9.1%, and the sharp rise in mortgage interest costs (+30.1% year-on-year) contributed the most to overall inflation in June.
Core inflation still too high
Measures of core inflation (excluding items with more volatile prices) which are most closely monitored by the Bank of Canada to gauge inflationary pressures in the economy continued to oscillate between 3.5% and 4%, is still above the central bank’s targets.
Economists say these measures of even higher-than-desired core inflation at the Bank of Canada suggest its fight once morest inflation by setting interest rates to their highest in 20 years might still go downhill. increase over the coming quarters.
In its interest rate hike statement last week, the Bank of Canada said it expected the inflation rate to hover around 3% over the next year, before declining to the 2% target by mid-2025.
Interest rate increases are intended to dampen demand for goods and services in the economy by making borrowing more expensive for consumers and businesses.
Ultimately, this so-called “restrictive” monetary policy process aims to neutralize inflationary pressures in the economy while avoiding triggering a recession.
Minister Freeland salutes the progress made in the fight once morest inflation without allowing herself to draw conclusions. “We are coming to the end of two years that have been very difficult,” she said, without wanting to speculate on the possibility that the inflation rate might stagnate above 2% until halfway through the rate. year 2025 as predicted by many analysts. “I don’t have a crystal ball and I won’t make predictions or forecasts,” she said.
With Melanie Marquis, The Press
The opinion of analysts
Andrew Grantham, Senior Economist, CIBC Capital Markets
“This deceleration in inflation is mainly due to the pullback in gasoline prices from their peaks seen in 2022. As a result, the core inflation measures most watched by the Bank of Canada are proving even more higher than the target levels. Despite this drop in the inflation rate in June, we cannot rule out the possibility that interest rates will rise once more at the start of the fall. »
Leslie Preston, Senior Economist and Director, TD Economics
“Inflation continued to make encouraging progress in June. In its recent statement on interest rates last week, the Bank of Canada expressed its concern regarding the persistence of inflationary pressures in the economy. June inflation data suggests things are moving in the right direction, but not fast enough for the Bank of Canada to lower its guard. »
Matthieu Arsenault, Deputy Chief Economist, and Alexandra Ducharme, Economist, National Bank Financial Markets
“The inflation rate in June returned to the Bank of Canada’s target range – around 2% – following 26 months above it. In this context, one wonders if the central bank was right to lose patience with the lack of progress on the inflation front, and to resume its rate hike in June. After this inflation report, we continue to believe that this additional increase [des taux d’intérêt] was premature and even dangerous for the economy. In fact, monetary policy in Canada is the tightest since 2008, and the tightest among the G7 countries. »
Royce Mendes, Director of Macroeconomic Strategy, Desjardins Capital Markets
“The inflation rate is back within the Bank of Canada’s target range. However, core inflation measures most closely watched by the central bank indicate that inflationary pressures remain lingering in the economy. After raising interest rates twice in recent months, I believe the Bank of Canada will be more patient until the fall. »
Among the largest increases in June (year-on-year)
Mortgage interest cost: +30.1%
Bakery products: +12.9%
Fresh fruit: +10.4%
Food in grocery stores: +9.1%
Dairy products: +7.4%
Motor insurance premiums: +5.4%
Source: Statistics Canada
Among the largest declines in June (year-on-year)
Fuel oil price (diesel): -31.5%
Motor gasoline prices: -21.6%
Cell phone services: -14.7%
Child care and housekeeping services: -10.4%
Transportation services: -3.4%
Internet access services: -3.2%
Source: Statistics Canada
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