Inflation: We’re not out of the woods yet

Inflation is similar to an attack of fever, the symptom of an infection that is sometimes difficult to fight.

If the patient is in good constitution and receives adequate treatment, there is no reason to doubt his recovery, but we often do not know how long it will take.

What forecast can be drawn from the Consumer Price Index (CPI) data released yesterday?

The situation appears to be stabilizing, but you won’t see the recovery tap dance tomorrow morning.

The portrait

Domestically, CPI rose 7.6% in July compared to the same period last year, an improvement from June (8.1%).

On a monthly basis, prices rose 0.1%, the smallest increase since December.

Inflation is still broadly outpacing wage increases, suggesting an erosion of purchasing power, but the gap has narrowed. A progress.

This data is largely explained by the fall in the price of gasoline, which was 9.2% cheaper compared to the previous month.

On the food side, however, increases continued to accelerate (+9.9%), which is particularly painful for low-income households. This is bad.

In housing, which accounts for the lion’s share of the budget, inflation is slowing but remaining relatively high.

Unsurprisingly, prices in the travel industry have skyrocketed for a year and restaurant bills continue to mount. Shocking without being vital.


upstream improvement

So there’s nothing to celebrate yet, although we’ve probably passed the peak.

The CPI stats are missing some promising signs observable upstream. Economists agree that supply chain disruptions, a factor in rising prices, are on the rise.

Container shipping costs, while not returning to pre-pandemic levels, have fallen by 40% since early April. In its Economic Monthly (July/August), the National Bank also reported a sharp fall in the prices of oil, industrial metals and agricultural products on the world markets, citing Bloomberg.

According to Statistics Canada, the lumber price at the beginning of August was well below the average for the last 52 weeks (-25% for 2×4, -17% for panels).

Is this a harbinger of lower consumer prices? It may take some time, but at least it’s not likely to make things any worse. So supply appears to be improving while demand is likely to fall further.

One unknown remains: To what extent will the labor shortage combined with rising prices weigh on wages? And how will wage increases, in turn, feed inflation?

Despite encouraging signs, the patient remains in need of care. Let’s not hope for the end of the treatment soon. In three weeks, the Bank of Canada will continue to apply its horse cure: 0.50% interest rate hike, minimum.

The next SV promotion

I wrote this column when Daniel Laverdière sent me the results of his calculations based on inflation.

The old-age pension (OAS) is adjusted four times a year for inflation. It was raised nearly $20 in July, the raise will come in October in these waters, according to the actuary. (Usually it’s no more than $5.)

Monthly base pension (before age 75) will increase from $666.83 to $685.50 on October 1st. The amounts of Guaranteed Income Supplement (GIS), Spouse Allowance and Survivor Allowance are also indexed.

The Quebec Pension Plan benefit will not be adjusted until January according to the Canadian CPI from November 1 (2021) to the end of October (2022). Patience…

Daniel Laverdière, Head of the National Bank’s Private Banking 1859 Competence Center, is retiring. Many chronicles would not have been possible without the many calculations of the financial planner. So thank you Daniel!

Don’t forget your computer when you drive your caravan across the country.

We never know.

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