Inflation Rate Plunges: Are Canadians Finally Seeing Financial Relief?

After record inflation numbers over the past year, Canadians are finally seeing some financial relief, as the latest inflation reports suggest. Canada's annual inflation rate dropped to 2.8% in June, bringing yearly price growth within the Bank of Canada's target range of 1% to 3%. This drop is largely due to falling gas prices across Canada.

 

Statistics Canada reported that the Consumer Price Index (CPI) dropped more than expected in June. The Consumer Price Index tallies several key measures of inflation, including food costs, housing, gas, and the cost of other common goods. Despite the recent drop in inflation, food prices remain remarkably high; 9.1% higher than the same time last year. 

 

A large contributor to Canada's high year-over-year inflation numbers are mortgage interest costs. The cost to borrow is up 30.1% compared to June 2022. Excluding mortgage interest costs, Canada's inflation rate would sit at only 2%. This is the exact inflation rate that the Bank of Canada is hoping to achieve.

 

On the other hand, falling gas prices have brought inflation numbers down considerably. Without factoring in the cost of gas, Canada's inflation rate would be 4% on a year-over-year basis.

 

The Bank of Canada will likely see this news as a step in the right direction. These findings suggest that the most recent interest rate hikes are creating the intended effect on the Canadian economy. After inflation hit a 39 year high in June 2022 of 8.1%, and the Bank of Canada raised interest rates a total of 475 basis points since March 2022 in an effort to curb inflation, the latest reports are good news for Canadians.