A factor cooling inflation could soon end. What it means for the Bank of Canada

globalnews.ca:

The waning of a factor helping to push down inflation means the Bank of Canada will be relying on a pronounced slowdown in the economy this fall to keep prices from rising more, experts say.

The central bank has indeed seen substantial progress in cooling the headline inflation figure; economists who spoke to Global News expect Tuesday’s consumer price index report from Statistics Canada will show 2.9 per cent annual inflation, down from highs of 8.1 per cent last summer.

But it’s in part because of that exact comparison — last year’s decades-high levels of inflation versus today’s mostly milder price hikes — that’s yielding inflation rates that appear relatively tame.

It’s a consequence of the so-called “base-year effect” — and its positive impact on inflation will shortly fall out of StatCan’s annual calculations.

“A lot of the base-year effects, in terms of pushing inflation rates lower, are in the past,” says RBC’s assistant chief economist Nathan Janzen in an interview with Global News.

One of the reasons Janzen expects inflation will have ticked up by a 10th of a percentage point in July is the recent run-up in gas prices.

While Canadians might be paying a bit more at the pump as of late, prices remain largely lower than the peaks of last summer when many motorists across the country were facing down $2 per litre of regular gasoline. Those high gas prices were a major fuel for rampant inflation in the summer of 2022.

Since inflation is calculated as a comparison of prices this year from last, rising gasoline prices can still be an overall drag on this July’s headline CPI figures, Janzen explains.

“That’s not because energy prices are particularly low — oil prices are still over US$80 a barrel — it’s just that they