Canada’s inflation rate hit 8.1% last month, according to Statistics Canada, the fastest annual increase in the cost of living in decades.
The data agency said gasoline was the biggest contributor to the overall rate hike, with prices at the pump rising 54.6% from the same month a year ago.
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If gasoline were eliminated, the inflation rate would be 6.5%.
Another major source of inflation this year has been food prices, which rose 8.8% last year. That’s the same pace of increase as the previous month, but economist Tu Nguyen of audit, tax and advisory agency RSM Canada says it’s too early to conclude that food prices have may have peaked.
“Part of this can be attributed to Canada consuming more domestically grown food in the summer, which helps keep costs down,” she said.
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In addition to higher food and gasoline prices, the data agency documented an increase in demand and prices for travel-related services.
“The return of sporting events, festivals and other large in-person gatherings has led to an increase in demand for accommodations, especially in major urban centres,” Statistics Canada said.
Accommodation prices were up about 50% nationwide from a year ago, and the cost of air travel rose 6.4% in the month.
More rate hikes expected
Although the 8.1% figure was the fastest annual increase since 1983, economists expected the rate to be even higher, with consensus among those polled by Bloomberg predicting a rate of 8.4 %.
“Today’s result is better, but not good,” is how Bank of Montreal economist Doug Porter described it.
“It’s really saying something when an inflation rate of 8.1% is greeted with a modicum of relief in financial markets because it wasn’t as bad as expected.”
Despite another decades-long high inflation, Wednesday’s data will likely bring some relief to the Bank of Canada, which has embarked on an aggressive campaign to raise interest rates to rein in the runaway cost of living.
After raising its benchmark rate by the biggest amount in 20 years last week, the bank is expected to continue raising lending rates, though perhaps not as aggressively as before.
“We expect the bank to continue higher in September, but with a more moderate move of 50 points at that time,” Porter said.
Shilpa Mishra, managing director of BDO Canada, says the inflation figure below experts’ expectations is good, cautious news for consumers and businesses, but she says that as long as the rate is double or triple what the central bank likes to see, the more likely rate hikes are.
“It’s like a slow ride on a roller coaster,” she said in an interview. “You don’t know when you’re going to reach the top.”