Posthaste: Don't crack the champagne yet — 2% inflation ain't what it used to be
You could almost hear the collective sigh of relief when inflation hit the Bank of Canada‘s 2 per cent target — after all we’d been waiting three years.
August’s reading was the slowest increase in the consumer price index since February of 2021, opening the door for the central bank to bring more relief to Canadians struggling under higher interest rates.
However, as good as hitting the target is, it is not a magic bullet — mainly because 2 per cent inflation today is a lot different than 2 per cent in 2019, say Royal Bank of Canada economists in a recent report.
“The composition of what’s driving prices looks very different now than it did before the pandemic, and in some ways, it is less healthy for the economy,” said the team led by chief economist Frances Donald.
Today’s inflation continues to hit Canadians where it hurts the most.
Two thirds of growth in inflation in August was mortgage interest costs and higher rents compared to two per cent growth on average in the decade before the pandemic, they said. Growth in mortgage costs will slow as the Bank of Canada cuts rates, but Canadians can expect less relief when it comes to home and rent costs that will stay high because of the housing shortage and growing population.
Food prices are another pain point. Even though this price growth is slowing, grocery prices are still up 25 per cent from before the pandemic.
“For many Canadians, especially lower-income families, housing and food prices remain the most critical categories for price growth,” said the economists. “One could argue that 2019’s 2 per cent inflation was a more favourable composition than 2024’s 2 per cent.”
Another reason 2 per cent inflation today weighs more heavily on Canadians than it did before
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