Canada's inflation rate decelerated to 3.4 per cent in the year up to May, Statistics Canada said Tuesday, led by sharply lower gasoline prices.
But beneath the headline slowdown in consumer prices, many facets of the cost of living are still increasing at an eye-watering pace.
Grocery prices went up at an almost nine per cent pace.
Maybe it's time for the Canadian government to now focus on what's actually causing inflation, instead of jacking up interest rates quarter over quarter. Maybe go after the grocery and gasoline retailers for their quite clearly collusive behaviour. Because putting my mortgage up another $1,000 a month isn't going to fix that.
True, and the Bank of Canada is doing what it said it would do. It's just well beyond the ability of the BoC to solve inflation on it's own. The best it can do is raise rates until we end up in stagflation, which I believe we are dangerously close to.
I also have to admit that many of the underlying causes of inflation are out of Canada's control, this is without doubt an international problem. Having said that, there is a great deal Canada still can do to influence inflation and the cost of living.
As an example, wrt housing, raising the interest rate slows demand, by making it harder for people to afford house, but it also slows building by reducing access to capital to actually build more houses (hence stagflation). This is why the BoC and interest rates are insufficient. However, the Federal government could get back into the business of building public housing. That right there would go a long way to reducing the cost of living. Would it solve everything? No. But it would help one aspect.
In some ways it will because now your disposable income will be reduced thereby crimping your ability to spend on consumer goods. You have to remember that the last time housing pricing went through the roof decades ago, BOC jacked up interest rates in order to bring prices back to earth and yes home owners who bought at the wrong time did suffer. These historically low interest rates are as much to blame for the housing price increases as the lack of new builds supply due to restrictive regulations and zoning policies. If we are to solve the affordability problem, housing prices will have to decline. Housing as the main wealth creation tool for the upper middle class of Canada and as a big driver of the economic growth has undesirable consequences that we are facing now.
I think treating housing as an investment, not a necessity has guided so many policy decisions over the decades leading to this. For sure, housing is only one component of inflation, but it is a component that is directly within the Federal governments ability to strongly influence.
Pretty much. Interest rates are a blunt tool. I'm worried we're drifting into stagflation.
Taking your example of housing, raising interest rates just makes it more expensive to own homes and to build homes. People have to live somewhere, and there isn't really any surplus housing. This makes it harder to downsize to reduce housing costs.
So much of what's driving inflation is outside of our control, but not necessarily beyond our influence.
I disagree with the assumption that there isn't any surplus housing, unless proven by a study. The only people I've seen actually pushing numbers on that have been ones with a vested interest in keeping housing prices high. My street is full of empty/for sale houses owned by speculators.
Lowering rates was the start of the housing market taking off though. And if you think you have it bad, imagine those rates but on twice the mortgage. RIP first time home buyers.
This is one of those cases where average inflation has decelerated, but consumers' experience of inflation remains unchanged - cost on stuff that the average consumer isn't using has gone back down, while cost on stuff we're buying remains inflated.
I don't see how the overall rate could decline with grocery prices increasing 9.1%... our overall buying power is still that much lower. I thought I made decent money but not with what's going on out there now.
Grocery prices went up at an almost nine per cent pace. That's barely lower than the 9.1 per cent pace clocked in April, and still almost three times the inflation rate.
Food prices have been increasing at a faster pace than the official inflation rate for more than a year now.
Despite gasoline prices dropping enough to drop the overall inflation rate by a full percentage point? Surely transport costs must have gone down significantly. What ever could be going on, here?
Historically speakimg, it's rarely good when the general public panics over their money, even if it's reasonable. When everyone tries to withdraw everything, it's called a "bank run".
Banks use "stand-in" money to make/keep money. The know most people would want to keep some of their savings, so they temporarily use some of that money to lend out and to make their own money. That sounds rough, but with many thousands of people, it can work without anyone missing their money when they need it. Those loans are used for home ownership, opening businesses, and more.
If everyone believes the bank is running out of money, they will likely rush to withdraw theirs before it's too late. This can just multiply the problem, and a bank may end up shuttering for good.
I'm not saying that we are anywhere near that point, but people don't always need a guaranteed reason to panic.
Although a little outdated being from Nov 2022, Statistics Canada has a great breakdown of what contributes to the rising costs of food beyond transportation costs.
I'm not saying corporate profit-taking isn't affecting prices or that we shouldn't do anything about it, just that there's a lot going on here. Last time I looked Loblaw's profit margin had increased from 2% to 3% from 2020-2023. A 50% increase is a lot and I think they're scum for doing that, but it doesn't explain the overall ~30% increase in food prices.
Loblaws is FAR from alone in terms of being part of the cause. I work in food manufacturing for a very big company.
For at least two years in a row now, my company has held a large meeting to tell us that they are making record profits.
This company has its hand in a pretty large variety of products. If you live in Canada, the US, or Mexico, there is a very good chance that you have either eaten their products or purchased them. If you're from the UK, you've probably seen some of their products on shelves, too. For my job safety, I will not disclose which company, although it's probably not the one you're thinking of. They have a LOT of sub-brands, and I probably would have never made the connection between them if I didn't work with those products myself.
I agree that this goes beyond just Loblaws. Every rung on the ladder is trying to squeeze as much profit as possible. You have the ingredient manufacturers. You have the packaging manufacturers. You have the transportation companies. You have the food manufacturers. You have the retailers. Many manufacturing companies work with multiple suppliers. Every step adds more to the cost. Everyone wants their profits.
If companies throughout the chain decide to charge more, the cost can become compounded. My company sells to Loblaws. If my company charges new high prices, Loblaws' will use my companies new high prices as a base-line for their own profit goals. That 20% to 27% difference is likely from profiteering behind the scenes. Some of our products have nearly doubled in retail cost over the last 5 years.
I work at one company. I previously believed that it wasn't that big. I doubt that we are the only company to be like this within Canada.
I'm not going to get excited about any "deceleration"; this is still an increase. And due to "base effects",1 we're comparing against high values. Until it's steeply negative it's nothing to get excited about.
1 year over year measures compare now versus a year ago. if a year ago was unusually high, you'd expect this comparison to revert to the mean over time as the window shifts forward; it could have more to do with what you're comparing to (a year ago) than what's happening today
Changing the formula isn't a problem, it changes all the time (and SHOULD change all the time). In my opinion the problem is the choice of headline from CBC. Even the article acknowledges the headline inflation rate is being influenced downwards by volatile items, and that economists as well as the BoC don't really care what the headline rate is. All eyes are still on the underlying "warm" parts of more consistent categories.
I agree that the basket of goods should change, but it's also weird that they've been changing it every year that they've been worried about runaway inflation.
It normally changes every few years. Not every year for the last 3.
For reference here is the new basket weights of the CPI. Updated with the release of the May 2023 data. And here is the HCFE data that they used to update the weightings.
A deflationary environment is very bad generally because it incentivizes people to not spend money which slows down the economy and hurts everyone.
The healthier thing to do is for wages to rise. Wages are currently rising but slower than inflation (2.9% yoy as of january), and that should make you mad.