Inflation at 8% in June, economists say

(Ottawa) Economists say inflation continued to rise in June.

Posted at 11:55am
Updated at 1:38 p.m

Nojoud Al Mallees
The Canadian Press

The consumer price index in Canada hit a 40-year high of 7.7% in May. Economists predict it could rise to at least 8% in June.

Statistics Canada is to release inflation data for June on Wednesday, a week after the Bank of Canada decided to hike interest rates by one point.

In parallel with the post-pandemic recovery, prices for many essential things began to escalate – gas, groceries, furniture. In the energy sector, prices have risen by 35% over the past year, while food prices have risen by around 10%.

The trend isn’t going away anytime soon, as many suppliers have warned grocery chains of further increases.

Derek Holt, head of capital markets economics at Scotiabank, is forecasting 8.9% inflation in June due to the “impact of stimulus”.

Other restrictions to combat the pandemic were lifted in June. This allowed several other activities to resume. More people are going to restaurants, more people are traveling by plane, more people are taking cruises.

Derek Holt, Head of Capital Markets Economics, Scotiabank

For its part, the Royal Bank believes we can expect further increases in food and fuel prices.

“Oil prices are up 4.8% since May. Food prices have skyrocketed due to rising commodity and supply chain issues,” their report said.

In the United States, inflation reached 9.1% in June.

Ongoing disruptions

The Bank of Canada said on Wednesday that “the war in Ukraine and ongoing supply chain disruptions have fueled inflation in Canada and elsewhere.”

She also said Canada’s economy was “overheating” due to labor shortages and strong demand. The unemployment rate was just 4.9% in June.

“The Bank is trying to prevent the risk of high inflation from becoming entrenched because if that risk were to materialize, even higher interest rates would be needed to restore price stability and the economy would be further weakened. »

Mr Holt warns that it will take time to see the impact of the Bank of Canada’s recent rate hike.

“It’s an experience that will last more than six months,” he says.

The Bank of Canada forecasts that inflation will reach 8% in the next few months but will slow to 4.6% next year.

Karyne Charbonneau, senior economist at CIBC, is more cautious. She says the Bank of Canada bases its forecasts on global factors over which it has no control.

“The same factors are responsible for most of the Bank of Canada’s misguided forecasts over the past year,” she said.

Mme Charbonneau hopes the Bank of Canada will act more aggressively if global pressures persist.

“Without a little help from our friends abroad, without a good dose of luck, we’re going to need a recession to beat inflation. »

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