Slowest rise in over three years for consumer price index
For insurers, brokers, and businesses monitoring economic stability, the latest inflation report from July shows a promising downtrend. According to Statistics Canada, inflation cooled to 2.5% from June's 2.7%—the lowest since March 2021. This easing of inflation rates is crucial as it might indicate a less volatile market, making financial planning and risk assessment more predictable.
Core inflation metrics, which the Bank of Canada uses to shape monetary policy, also saw a decline. The consumer price index (CPI) commonly reached 2.2%, the CPI-trim was at 2.7%, and the CPI-median stood at 2.4%. These figures suggest a gradual stabilization of prices, which can help businesses forecast expenses and investments more accurately.
Dawn Desjardins, chief economist at Deloitte Canada, noted that unlike last July, which saw significant cost increases, this year has been more stable. This stability is a positive sign that inflation may continue to decrease or remain steady, without significant upward pressure on prices.
A significant area of interest for insurers and businesses is the shelter cost inflation, which also decelerated in July to 5.7% year-over-year, down from 6.2% in June. The decline was driven by decreases in rent, mortgage interest costs, and fuel oil prices. Specifically, mortgage interest rates dropped slightly to 21% from 22.3% the previous month, and rent inflation slowed to 8.5% from 8.8%.
However, despite the general cooling of inflation, certain areas saw increases. Fuel oil and other oils rose by 3.5% in July, a stark contrast to the 10.5% hike in June. Economists view these developments as strengthening the case for the Bank of Canada to reduce its policy rate in the upcoming September meeting and possibly further at the year's end. Senior economist at CIBC Capital Markets, Andrew Grantham, suggests that with fading inflationary pressures and growing concerns about a weakening labour market, we might expect three more rate cuts of 25 basis points each this year.
David Rosenberg, president of Rosenberg Research & Associates Inc., believes the central bank is still lagging in reducing rates and should consider rolling back its stringent policies soon.
Notably, some cost areas have not seen reductions; year-over-year gasoline prices increased to 1.9% in July from 0.4% in June, attributed to supply issues in the Prairie provinces. This was the primary driver of a 0.4% monthly increase in the overall CPI.
With inflation rates and economic trends constantly shifting, it's crucial for businesses and insurers to stay informed and adapt their strategies accordingly.
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