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Rising inflation eases but Canada’s housing remains a concern

REAL ECONOMY BLOG | May 18, 2022

Authored by RSM Canada


April brought a hint that inflation could soon peak in Canada. The Consumer Price Index rose at an annual rate of 6.8%, a slight increase from March, while all measures of core inflation continued to rise, according to data from Statistics Canada released on Wednesday.

On a monthly basis, the increase was 0.5% from March.

But even with the signs of inflation easing, the Bank of Canada is still on track to raise interest rates sharply in June to keep long-run inflation expectations anchored.

Cabada CPI

Most of April’s price increases were concentrated in food, shelter and energy. The core inflation rate, which excludes food and energy, stayed at a steady 4.6% from March to April.

So while the overall inflation rate’s increase has slowed, hinting at a possible peak in the next few months, the cost of basic necessities like food, housing and gasoline continues to rise, hitting lower-income households the hardest.

Prices of groceries rose by 9.7%, with increases spread across all items including fresh fruits and vegetables, meat, dairy and bakery products. When a rise is this pervasive, consumers have little choice of substitutions like they might have when meat prices were the only category rising.

At the same time, prices for homeowners increased by 7.6% and rent went up by 4.6%, the fastest rate in decades.

When households already have to stretch their budgets to buy groceries and gas, a jump in rent, which is much stickier than gasoline prices, will strain their budgets even more. It will also lead to a slowdown in demand because there is little left for discretionary spending.

Gasoline increased by 36.3% from a year ago, a slightly slower pace compared to March. Still, gasoline prices surpassed $2 a litre and are expected to rise over the upcoming long weekend.

With the summer comes higher demand for travel, keeping prices of air fares and gasoline elevated at least through Canada Day.

The takeaway

While inflation could peak soon, the risks are far from over. The war in Ukraine and COVID-19 lockdowns in China will send further shocks throughout the global supply chains. Consumers should count on prices to stay high for some time. Eventually, an economic slowdown is to be expected.

Questions?

Contact your trusted Stark & Marsh Advisor or an office close to you.

This article was written by Tu Nguyen and originally appeared on 2022-05-18 RSM Canada, and is available online at https://realeconomy.rsmus.com/rising-inflation-eases-but-canadas-housing-remains-a-concern/.

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