Gas prices pull back inflation

Inflation may have peaked, but still remains “far too high” according to a new op-ed penned by the Bank of Canada (BoC) Governor Tiff Macklem.  

What happened: The annual pace of price hikes fell from June's 39-year high of 8.1% to 7.6%, with easing gas prices being the biggest contributor to the cooldown. 

  • Gas prices were still running ~36% higher in July than a year earlier, but were 9% lower than in June. It was the largest monthly fall in gas prices in over two years.  
  • Excluding gas, the consumer price index has jumped 6.6%. And prices for more than half of the goods and services that make up the index are still rising faster than 5%. 
  • Grocery costs alone are up from 9.4% in June to 9.9%, and the costs of eating out, natural gas, and travel (both airfare and hotels) continue to rise. 

Why it matters: This could be a turning point in the battle against inflation, but Macklem made clear that there is still a long road ahead and more interest rate hikes to come.

  • Inflation will “likely remain high for some time,” he wrote, pointing to persisting global factors like supply chain issues, the war in Ukraine, and swinging commodity prices, as well as demand for goods and services that continues to outpace supply. 

Bottom line: 7.6% is far from the BoC’s 2% target. Another rate hike in September is inevitable, but easing numbers make another full percentage point increase seem less likely.