Canada’s annual inflation rate fell to 2.5 per cent in July, its lowest level since March 2021, and down from 2.7 per cent in June.
Statistics Canada’s latest Consumer Price Index report, released on Tuesday, attributed the decrease to lower prices for travel tours, passenger vehicles, and electricity.
Despite this decline, shelter costs remain a major inflationary concern, with Canadians experiencing significant increases in rents and mortgage payments.
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“Inflation has gone down again — to 2.5 per cent. We’ve still got a lot more work to do to make sure Canadians feel that relief in their bank accounts. But inflation is cooling, and that’s welcome news,” Prime Minister Justin Trudeau said in an X post.
However, many Canadians are puzzled by persistent price increases despite the drop in the inflation rate.
“Inflation going down, but the price isn’t!,” one X user said.
“If inflation is coming down doesn’t mean the prices are coming down…it just means the rate at which prices are increasing has come down,” University of Toronto Professor of Economics Angelo Melino explained in an interview with Now Toronto on Tuesday.
He noted that while some prices have decreased, others continue to rise, though not as quickly as before.
But, Melino says he sees today’s announcement as a “good sign.”
“We’re not doing as badly as we were last summer,” he added, while pointing that the economy is still doing “poorly.”
In July’s rate cut announcement, Governor of the Bank of Canada Tiff Macklem had noted that he is looking for “wage growth to moderate further.”
Melino says he is encouraged by the wage increases which have grown annually by 5.1 per cent, as per the latest employment report.
In addition, Ontario’s minimum wage is set to rise from $16.55 per hour to $17.20 as of Oct. 1.
However, he is worried that the “the prospect of unemployment going higher is a real one and a serious one.”
Overall, the price pressures in the country have been easing throughout the year, with the annual inflation rate remaining below three per cent since January.
The Bank of Canada has responded by lowering its key interest rate at its last two meetings, and Macklem has signaled that further rate cuts may be forthcoming if inflation continues to slow. The next rate announcement is set for Sept. 4.
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Melino says he was not expecting a rate cut in September until the recent data suggested that the combination of lower core inflation and weak economic growth might prompt the Bank of Canada to act next month.
If the central bank does cut interest rates in September, it will be the bank’s third consecutive cut.
