Economists are predicting even more reading inflation Energy and food prices rose as the economy reopened for June.
The consumer price index in Canada rose to a nearly 40-year high of 7.7 percent in May. Now, economists are predicting that number has jumped to at least eight percent over the past month.
Statistics Canada will release June inflation figures on Wednesday, a week after bank of canada raised its prime interest rate a full percentage point.
Prices of everything from food to furniture to gasoline are rising globally as pandemic restrictions are eased. Energy prices rose 35 percent year-on-year, while food prices rose nearly 10 percent.
More growth is on the way, with many food suppliers warning grocery retailers to expect further price hikes.
Derek Holt, head of capital markets economics at Scotiabank, said projects inflation hit 8.9 percent in June due to the “reopening effect.”
“The restrictions coming in from the pandemic fell even further in June and that sparked a whole wave of activity – more people eating out, more people flying in, more people getting on the boat,” Holt said.
An RBC report published on Friday said the uptick in prices in June is expected to be the result of an even higher rise in food and energy prices.
“Oil prices have risen further by 4.8 per cent since May and consumer food prices have risen sharply, driven by higher commodity prices and acute supply chain disruptions,” the report said.
For Canadians whose wages are below inflation, rising prices are making them financially worse.
In June, the average hourly wage was 5.2 percent higher than a year earlier.
The Bank of Canada said global pressures were largely to blame for rising inflation, with the Russian invasion of Ukraine and supply chain issues putting pressure on energy and food prices.
In the US, inflation hit another multi-decade high in June, peaking at 9.1 percent.
Domestically, the central bank said the economy is “overheated” as businesses struggle to find workers and demand for their products remains strong. The unemployment rate hit a record low of 4.9 percent in June.
Another factor that threatens to keep inflation high is rising inflation expectations among consumers and businesses, according to surveys conducted by the Bank of Canada.
Since the interest rate is the only instrument against inflation, the central bank is hoping to slow domestic demand and manage inflation expectations with its rate hikes.
In its most recent monetary policy report, the Bank of Canada hit home the point.
“The bank is avoiding the risk that high inflation becomes trapped because if this happens, even higher interest rates will be needed to restore price stability, leading to a weaker economy.”
“Restoring price stability _ low, stable and predictable inflation _ is paramount,” the bank’s governor, Tiff McCalem, said at a news conference after the rate announcement.
However, Holt said the impact of the Bank of Canada’s recent rate hike will take time to appear.
“This is an experiment that will take more than six months to appear,” he said.
The Bank of Canada is forecasting inflation to reach eight percent over the next few months and fall to 4.6 percent next year.
Karyne Charbonneau, senior economist at CIBC, said the Bank of Canada’s forecast for a fall in inflation next year hinges largely on global factors that are beyond the control of the central bank.
“These are the same factors that explained most of the bank’s inflation forecasting errors over the past year, suggesting that they are also the most difficult to predict,” Charbonneau wrote in a note.
And while there are some signs of a cooling in Canada’s housing market, which will bring down overall inflation, shelter costs accounted for a relatively small portion of the projected decline in inflation next year.
In June, average national housing prices fell by 1.8 percent year-on-year.
Without easing global pressure, Charbonneau said more aggressive action from the Bank of Canada would be necessary.
“If we don’t get the slightest help from our friends abroad and a healthy dose of luck, we’re going to need a recession to beat inflation.”
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