Economists say inflation may have peaked in June

Economists are predicting Canada’s inflation rate may have peaked in June as soaring gas prices pushed the cost of living up 8.1 per cent compared with a year ago, its hottest pace in nearly 40 years.

Statistics Canada said on Jul. 20th that the annual inflation rate for June was up from 7.7 per cent in May and marked the largest yearly change since January 1983 when it hit 8.2 per cent.

The increase in the consumer price index for the month was largely due to higher gasoline prices, which shot up by more than 50 per cent compared with a year ago.

Excluding gasoline, the country’s inflation rate was 6.5 per cent in June compared with 6.3 per cent in May.

CIBC senior economist Karyne Charbonneau said the headline reading for inflation was lower than expected and called it the “first negative surprise on inflation in many months.”

“With gasoline prices expected to fall next month, we could finally have seen peak inflation,” Charbonneau said in an email.

According to retail analytics platform Kalibrate, gas prices have dropped from a peak of $2.14 per litre in mid-June to $1.88.

Douglas Porter, chief economist at the Bank of Montreal, said the June inflation reading was “better, but not good.”

“There is likely to be some relief in next month’s report, as gasoline prices are currently tracking roughly a nine per cent drop in July,” he said in a report. “However, the concern is that other costs remain robust.”

“While a pullback in pump prices could calm headline inflation next month, we will need to see core relent for inflation to truly peak.”

RSM Canada economist Tu Nguyen said she thinks it’s premature still to declare that Canada has reached the peak of inflation.

Nguyen said there are still many uncertainties when it comes to global pressures on inflation, including the war in Ukraine and an ongoing pandemic that could shut down manufacturing overseas in places like China.

In its latest monetary policy report, the Bank of Canada forecasted inflation will hover around eight per cent over the next few months before it begins to decline.

Last week, the Bank of Canada ratcheted its efforts against rising inflation when it raised its key interest rate by a full percentage point, bringing it to 2.5 per cent. It was the largest single increase since 1998.

Statistics Canada is scheduled to release its inflation report for July on Aug. 16 ahead of the Bank of Canada’s next rate decision set for Sept. 7.

CIBC said the Bank of Canada will then be deciding between a half of a percentage point hike or a three quarters of a percentage point hike and will likely lean towards the latter. But, Charbonneau said the June inflation reading “may increase the chance they choose the small of the two steps.”

Porter also predicted the Bank of Canada will hike its key interest rate by a half of a percentage point in its next decision.