Reference to the CFA’s Advocacy Update from August 18, 2022

The annual rate of inflation dipped to 7.6 per cent in July, Statistics Canada reported Tuesday, as lower gas prices took some of the heat off household budgets.

In its latest consumer price index (CPI) report, the federal agency said the rise in prices in July marked the smallest monthly gains since December 2021. The CPI was up 0.1 per cent compared with June.

Gas prices dropped 9.2 per cent in July compared with a month earlier, Statistics Canada said. Ontario, which was among provinces temporarily waiving the gas tax, saw the largest decline in prices at 12.2 per cent month-over-month.

But while gas prices declined, food prices rose at the fastest pace since August 1981, with prices up by almost 10 per cent since a year ago.

Natural gas prices were also up 12.4 per cent month-to-month and 42.6 per cent year-over-year, which was the largest driver of inflation.

Bakery goods are up 13.6 per cent since last year amid higher input costs as the Russian invasion of Ukraine continues to put upward pressure on wheat prices. The prices of other food products also rose faster, including eggs, which are up 15.8 per cent, and fresh fruit, up 11.7 per cent since last year.

As mortgage costs increase with higher interest rates, the report notes rent prices are accelerating, rising faster in July than the previous month.

With more Canadians travelling during the busy summer season, airfares rose by around 25 per cent in July compared with the previous month. Traveller accommodation prices rose by nearly 50 per cent since a year ago, with the largest price increases in Ontario.

Hourly wages were up 5.2 per cent in July but are still not keeping pace with inflation. The decline in the headline inflation figure comes off a nearly 40-year high of 8.1 per cent set in June. It also marks the first decline in the key inflation rate since June 2020.

What’s does this mean for Bank of Canada interest rates?

The Bank of Canada is paying attention to this latest reading of inflation as it gears up to make its next key interest rate on Sept. 7, when it’s expected to raise borrowing rates again. The central bank will likely be closely monitoring the inflation rate minus gas and food, which was up 5.5 per cent last month. Many economists have predicted the bank would raise its benchmark interest rate 75 basis points in September.

Click here to read the Consumer Price Index, July 2022

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