Canada’s Inflation Hits A 39-Year High, Experts Say The Problem Is Far From Over

Canada’s inflation data came in lower than expected, but still advanced to a new high. The June Consumer Price Index (CPI) from Statistics Canada (Stat Can) showed the highest annual growth since 1983. It was less than the market expected but still accelerating and way above target. Experts see the elevated inflation requiring a contraction to correct it to target.

Canadian Inflation Hits The Highest Level Since 1983

Canada’s CPI ripped higher, largely due to the price of gasoline. Annual growth came in at 8.1% in June, the largest annual growth since January 1983. Despite markets expecting higher inflation and this being a “relief,” it was 0.4 points higher than May. Price growth isn’t just high but still accelerating.

Canadian Inflation Is Now Growing At The Fastest Rate Since 1983

The annual rate of growth for the Canadian consumer price index (CPI).

Source: Statistics Canada; Better Dwelling.

“Canadian consumer prices came in a little below expectations in June, for a change, but that’s about where the good news ends,” said Douglas Porter, chief economist at BMO. 

“The sizzling read came in 2-3 ticks below consensus expectations, but was still enough to drive the annual rate to yet another new multi-decade high. Note that the monthly rise would have been at the upper end of anything seen in the decade before the pandemic, and still represents an annualized increase of just over 8%—so today’s result is better, but not good.”  

Canada’s Inflation Might Be Close To Peak, But Is Still Very High

Global prices for commodities and oil means inflation is near the peak. This morning, economists from BMO, RBC, National Bank of Canada, and Desjardins respectively said they see CPI’s growth peaking soon. However, the annual rate of growth is still 4x the target rate, eroding purchasing power at a very fast rate. 

“… price growth is still too high, and won’t ease sustainably back to the Bank of Canada’s 1% to 3% target range until consumer demand slows substantially,” said Nathan Janzen, assistant chief economist at RBC.  

“We look for the BoC to hike the overnight rate to 3.25% by October and for that to push the economy into a moderate contraction next year.” 

Let’s not get this mixed up. It’s great that annual growth is slowing, but that’s very different from falling. It’s not even as good as growth stalling, it’s getting worse. The 0.4 point acceleration was still the equivalent of a fifth of the target overnight rate. Even if inflation stopped rising, it would still be more than 4x the target rate. 

The first sign of inflation problems resolving will be CPI’s annual growth peaking. Then CPI needs to fall back to the target rate, without triggering a recession… then it needs to stabilize in the target range. Canada isn’t even at the point where it’s no longer rising, so the challenge isn’t close to over. It’s arguable the Bank of Canada has barely started to tackle the problem.