Inflation surges to 7.7%, fastest since 1983: What Canadians need to know

Statistics Canada reported on June 22 that Canada's consumer price index increased in May from a year earlier. The most dangerous burst of inflation since the Bank of Canada started targeting the consumer price index was confirmed in the release. You need to know what to look for.

Not just gas, food too

The consumer price index was put under pressure by gasoline prices. Many people were already anticipating a big increase in the price of gas as it became something of a hobby. We knew that was going to happen.

It is difficult to monitor the cost of food in real time. The cost of Statistics Canada's food basket went up in May. The agency attributed the increase to rising transportation and input costs, which have gone up since the war in Ukraine crimped global supplies. The cost of oils and fats went up by a record 30 per cent from May 2021. The price of fresh vegetable went up by more than 8 percent in April. Statistics Canada said that the rise in fish was due to tariffs on imports from Russia.

Food inflation may have peaked at an uncomfortably high level. The price of meat went up by nine per cent over the course of the year. One in five Canadians think they'll get food from a food bank over the next six months, but that won't mean much to them.

Higher interest rates work

Housing is sensitive to interest rates. Home prices went up after the Bank of Canada dropped its benchmark interest rates. The rate has been raised to 1.5 percent by the central bank. You would expect home prices and sales to be corrected. There is a correction in the inflation data. The measure of shelter costs, which attempts to mimic the monthly cost of keeping a roof over our heads, increased from May to May, the same as in April. The homeowners replacement cost, a proxy for real-estate prices, went up in the month of June. It seems that housing inflation is cooling.

As interest rates rise, the partial offset from cheapmortgages is diminishing. Mortgage interest costs fell less in May than they did in April. The cost of running a mortgage has put upward pressure on inflation.

Bottom line for the Bank of Canada

The Bank of Canada will raise its benchmark rate by three-quarters of a percentage point when it next adjusts policy in July, according to analysts and traders at Bay Street. Those assumptions will be firmed by these data. The Bank of Canada is worried that inflation is becoming a self-fulfilling prophecy and headlines about how prices are surging at the fastest pace in almost four decades will only increase that threat. Much of the upward pressure on prices is beyond the control of the Bank of Canada. There are early signs that inflation is decreasing. Prices are rising too quickly for comfort.

The email address is kcarmichael@postmedia.

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