Forget the 8.1%: Here’s why inflation has already peaked – maybe

New data from Statistics Canada this week showed that the cost of living continues to rise in breathtaking pace of 8.1% in the year until June.

Anyone who’s recently filled a tank of gas or a shopping cart knows how rapidly the price of almost everything is rising right now, but a look under the headlines suggests there’s reason to be optimistic and cautious that we may already be above the inflationary hump.

Food prices have been rising at a breathtaking pace recently, up 8.8% from last year, according to Statistics Canada. But that’s actually the same annual rate of increase as the month before, and grocery prices were actually down from their May level. This is the first time we’ve seen this since April 2021.

The retail price of meat is now lower than it was in April, and fruit and vegetable prices have fallen for two consecutive months, according to the national statistics office.

So you might not feel like it when you scan your receipt at checkout, but there’s legitimate reason to hope we’re starting to see some relief.

“I actually think we’re starting to see the end of the food inflation tunnel,” said Sylvain Charlebois, professor of food distribution and food policy at Dalhousie University in Halifax. “You can feel that we peaked in June, or maybe even earlier.

“Food prices will rise – make no mistake – but the rate at which prices are rising will slow at the end of 2022.”

WATCH | Food professor says grocery inflation may have peaked:

Food price inflation is slowing, expert says

Although the price of food is increasing at a higher rate than general inflation in Canada, the general trend is positive and “we are starting to see the end of the food inflation tunnel”, says Sylvain Charlebois of the Laboratoire d’analyse agroalimentaire from Dalhousie University.

As hard as it may be to believe, Statistics Canada calculates that a host of products and services as varied as men’s clothing, car insurance, digital equipment like computers and soft drinks were cheaper in June than they were in May.

Many consumers may not feel these savings because people don’t tend to spend a lot of money on them very often, unlike something like food, where price increases tend to irritate consumers. because they buy them so often.

This is also the case for gasoline prices, and there are reasons for hope on this front as well.

Sure, prices at the pump are up 54.6% over the past year, but much of that annual increase happened in early 2022, when Putin’s invasion of Ukraine plunged the oil markets into turmoil as the world raced to find alternatives to sanctioned Russian crude oil.

The price per barrel of crude oil was below US$70 per barrel as recently as December, before climbing as high as US$123 in March. Today it is trading at around US$100, and while it is likely to be an inflationary factor for the rest of the year, there is growing belief that oil prices may have already peaked, at least in the short term.

Drivers were shocked when the average retail price of gasoline exceeded $2.14 per liter this spring. But it has come down with the price of oil averaging $1.86 across the country and is expected to fall further this summer.

Half of the monthly increase in the headline inflation rate comes from gasoline alone, so if that has changed direction, the inflation rate should soon follow suit.

“With gas prices expected to fall next month, we might have finally seen a spike in inflation,” said CIBC economist Karyne Charbonneau.

A farmer harvests wheat in a field near the village of Hrebeni, Ukraine in 2020. Russian President Vladimir Putin’s invasion of the grain-exporting nation has sent wheat prices skyrocketing, but prices are already descending. (Valentyn Ogirenko/Reuters)

It’s not just oil and energy either. Prices for a host of commodities, from crops like wheat and cotton to building materials like aluminum, steel and copper, have fallen precipitously in recent months as the specter of recession has led to a drop in demand for all kinds of materials that go into consumer goods.

When prices started to rise in 2021, many economists and policymakers dismissed it as likely short-lived, and the buzzword”transient“became something of a running joke over time and it became clear that inflation had legs.

Michael Devereux, a professor at the Vancouver School of Economics at the University of British Columbia, says another T-word is perhaps more apt to describe the inflationary pressures from where we are now.

“Many of these inflationary factors may be temporary because they are the result of global forces, such as the spike in world food prices following the Russian invasion of Ukraine,” he said in an interview. “We are already seeing some loosening in energy prices … so we are likely to see global inflationary forces subside as we move into the year.”

The cost of raw materials that go into everything from what we eat to the products we buy are rapidly falling, as is the cost of transporting them.

CBC News has reported extensively on the misfortunes of furniture companies, bakeries, retailers and other logistics companies who have been warning for months that significantly higher transport costs lead to higher prices and empty shelves for consumers.

But a closely watched metric for global maritime trade suggests the stalemate there too may have broken.

Freightos, which tracks the global shipping industry, says huge freighters that carry just about every consumer good are once again departing at less than full capacity, a clear sign that demand is starting finally to decline.

“The additional space available, particularly from China to the United States, has driven prices down significantly since early May,” the company’s head of research, Judah Levine, told CBC News in an e-mail. -mail.

The price to ship a 12-meter sea container from Asia to the West Coast of the United States was US$7,271 last week. That’s more than half down from the more than US$16,000 it would have cost to ship just two months ago — and more than US$20,000 last September.

“The decline in consumer demand is expected to kick-start the decongestion process that has caused delays and contributed to high freight rates,” Levine said.

reason to hope

If the wind is blowing on shipping costs, that’s another reason to expect consumer-level prices to start recovering soon. Because while the official inflation rate is quite likely to rise from its already high level in the coming months, it is mainly because comparisons with the situation a year ago are so dramatic.

Recall that the summer of 2021 again saw much of the country in lockdown, with most people unvaccinated and many sectors of the economy in deep freeze. Compared to this, the annual inflation rate looks even higher than it actually looks.

But mounting evidence suggests that many of the causes of the acute inflationary pinch Canadians began to feel in early 2022 may already be in the rearview mirror.

Claire Fan, an economist at RBC, says the ongoing slowdown in the Canadian housing market will soon help bring down the rate of inflation, as lower sales and prices will drive down the amount spent on commissions from real estate agents. . Spending on buying a home fell last month on a year-over-year basis for the first time since last summer, she notes.

Combine that with what’s happening at the gas station and the grocery store, and it all adds up to a recipe for an inflation rate that may have already turned the corner.

“It really takes a little less aggregate consumer demand to bring down a lot of inflation,” she said. “We see this in producer prices and it’s going to take time to trickle down to retail prices…but that’s indeed what we expect.”