Inflation up 3.1% but many costs of living have fallen

Statistics Canada has published the latest Consumer Price Index but the devil is in the detail

Inflation up 3.1% but many costs of living have fallen
Steve Randall

On the surface, a 3.1% rise in Canada’s inflation rate is concerning, but the latest Consumer Price Index (CPI) shows that many everyday costs are now easing.

Statistics Canada’s latest data is for June and the 3.1% increase year-over-year is smaller than May’s 3.6%, reflecting rising prices last summer. The monthly increase also eased, from 0.5% in May to 0.3% last month.

The two biggest factors impacting the CPI are shelter costs, which increased 4.4% from June 2020, and transportation, which was up 5.6% year-over-year.

With gasoline excluded from the figures, inflation was 2.2%, far closer to the Bank of Canada’s target. Gasoline prices were up 32% year-over-year in June, although a slower rate than May’s 43%.

The BoC has said that it is less concerned about inflation above its target rate due to the exceptional circumstances of the pandemic which saw prices fall sharply in early 2020.

Shelter was impacted by the cost of new housing, with materials prices pressured by tight supply, and the related increase in the homeowners’’ replacement cost index (up almost 13% year-over-year.)

Home buyers and sellers also faced a 12% increase in legal and real estate agent fees, although the cost of mortgage interest fell amid historic low interest rates. The mortgage interest rate index was down 8.6%, its largest decline on record.

Other everyday expenses

While the overall inflation rate is still elevated, there are many elements of the household budget that are easing.

Buying beef was less expensive than a year ago, although chicken was pricier. Fresh vegetable prices – tomatoes and potatoes particularly – were lower.

Cell phone devices and plans were also lower than a year ago as operators offered promotions.

Clothing and footwear costs were also down, especially for women’s clothes.

Prices rose at a slower pace in four of the eight major components on a year-over-year basis in June.