Business·Analysis

Forget the 8.1%: Here's why inflation has already peaked — maybe

Canada's inflation rate has risen to its highest level in decades and may rise higher still from here. But from the cost to fill a gas tank, a shopping cart, or even an ocean liner, there's mounting evidence that the worst of inflation may already be behind us.

Prices are still going up at their fastest pace in decades, but some relief may finally be on the way

A pair of hands hold a roll of stickers, indicating discounted prices.
Canada's inflation rate may well rise beyond its current level of 8.1 per cent. But it's getting easier and easier to find examples of prices for goods and services coming down from where they were a few months ago. (Pascal Rossignol/Reuters)

New data from Statistics Canada this week showed that the cost of living continues to go up at the eye-watering pace of 8.1 per cent in the year up to June.

Anyone who's filled a gas tank or a shopping cart recently knows how the price of just about everything is going up fast right now, but a peek beneath the headlines suggests there are some reasons for cautious optimism that we may already be over the inflationary hump.

Food prices have increased at a breathtaking pace recently, with prices up 8.8 per cent since last year, according to Statistics Canada. But that's actually the same annual pace of increase as it was the month before, and grocery store prices were in fact down from where they were in May. That's the first time we've seen that since April 2021.

The retail price of meat is now less than it was in April, and fruit and vegetable prices have fallen for two months in a row, according to the national statistical office.

So it may not feel like it when you're scanning your receipt at the checkout, but there are legitimate reasons to hope we may be starting to see some relief.

"I actually think that we're starting to see the end of the food inflation tunnel," said Sylvain Charlebois, a professor in food distribution and food policy at Dalhousie University in Halifax. "You can feel that we peaked in June, or perhaps even earlier.

"Food prices will rise — don't get me wrong — but the pace with which prices are rising will slow down as we end 2022."

WATCH | Food professor says grocery inflation may have peaked:

Food price inflation slowing down, expert says

4 months ago
Duration 6:37
Though the price of food is increasing at a rate higher than general inflation in Canada, the overall trend is positive and 'we're starting to see the end of the food inflation tunnel,' says Sylvain Charlebois of the Agri-Food Analytics Lab at Dalhousie University.

Hard though it may be to believe, Statistics Canada calculates that a slew of products and services as varied as men's clothing, car insurance, digital equipment like computers and non-alcoholic beverages were cheaper in June than they were in May.

Many consumers may not be feeling those savings because people don't tend to spend a lot of money on them very often, as opposed to something like food, where price increases tend to irk consumers so much because they buy it so frequently.

That's the case for gasoline prices, too, and there's reason for hope on that front as well.

Sure, pump prices rose by 54.6 per cent in the past year, but much of that annual increase happened in early 2022, when Putin's invasion of Ukraine sent oil markets into turmoil as the world scrambled to find alternatives to sanctioned Russian crude oil. 

The price of a barrel of crude oil was below $70 US a barrel as recently as December, before it spiked to as much as $123 US in March. Today, it's trading at about $100 US, and while it is likely to be a factor in inflation for the rest of the year, there's a growing belief that oil prices may already have peaked — at least in the short term.

Drivers were shocked when the average retail cost of gasoline topped $2.14 a litre this spring. But it's come down along with the price of oil to $1.86 on average across the country and is expected to slide further still this summer.

Half of the monthly increase in the headline inflation rate came from gasoline alone, so if that has changed direction, the inflation rate should soon do the same. 

"With gasoline prices expected to fall next month, we could finally have seen peak inflation," CIBC economist Karyne Charbonneau said.

A combine moves through a field of wheat.
A farmer harvests wheat in a field near the village of Hrebeni, Ukraine in 2020. Russian President Vladimir Putin's invasion of the grain-exporting nation caused the price of wheat to skyrocket, but prices are already coming back down. (Valentyn Ogirenko/Reuters)

It's not just oil and energy, either. Prices for a slew of commodities, from crops like wheat and cotton, to building materials like aluminum, steel and copper, have fallen precipitously in recent months, as the spectre of recession has dragged down demand for all kinds of materials that go into consumer goods.

When prices started rising in 2021, many economists and policy-makers shrugged it off as likely short-lived, and the buzzword of "transitory" became something of a running joke as time went on and it became clear inflation had legs.

Michael Devereux, a professor at the Vancouver School of Economics at the University of British Columbia says another T-word is perhaps more apt to describe inflationary pressures from where we are now.

"Many of these inflationary factors may be temporary because they're the result of global forces, such as global food price spikes following the Russian invasion of Ukraine," he said in an interview. "We're already seeing some relenting in the energy prices ... so we are likely to see that the global inflationary forces ease as we move on through the year."

The cost of raw materials that go into everything from what we eat to the products we buy is dropping swiftly — and so is the cost to move it around.

CBC News has reported extensively on the woes of furniture companies, bakeries, retailers and other logistics firms who have been warning for months that sharply higher transportation costs are leading to higher prices and empty shelves for consumers

But a closely watched metric for global shipping trade suggests the logjam there, too, may have broken. 

Freightos, which tracks the global shipping industry, says massive cargo ships that carry just about every single consumer good are once again setting sail at less than full capacity, which is a clear sign that demand is finally starting to wane.

"The extra available space has, especially from China to the U.S., pushed prices down significantly since early May," the company's head of research, Judah Levine, told CBC News in an email.

The price to ship a 12-metre shipping container from Asia to the U.S. West Coast was $7,271 US last week. That's down by more than half from the more than $16,000 US it would have cost to ship barely two months ago — and more than $20,000 US last September. 

"Falling consumer demand is meant to kick off the process of unwinding the congestion that has caused delays and contributed to elevated freight rates," Levine said.

Reason for hope

If the wind is coming out of the sails of shipping costs, that's another reason to expect prices at the consumer level to start to get some relief soon. Because while it's entirely likely that the official inflation rate may well increase from its already high level in the coming months, it's mostly because the comparisons to where things were a year ago are so dramatic.

Recall that the summer of 2021 still saw much of the country in lockdown, with most people unvaccinated and many sectors of the economy in a deep freeze. When compared to that, the annual inflation rate looks even bigger than it may feel in reality.

But there's a growing body of evidence to suggest that a lot of the causes for the acute inflationary pinch Canadians started to feel in early 2022 may already be in the rearview mirror.

Claire Fan, an economist with RBC, says the slowdown underway in Canada's housing market will soon help drag down the inflation rate, as fewer sales and lower prices bring down how much money is being spent on Realtor commissions. Expenses related to purchasing a home fell last month on an annual basis for the first time since last summer, she notes.

Combine that with what's happening at the gas station and the grocery store, and it all adds up to a recipe for an inflation rate that may have already turned the corner.

"It really takes just a bit less consumer demand overall to bring down a lot of the inflation," she said. "We're seeing that in producer prices and it's going to take time to trickle through to retail prices ... but that is indeed what we're expecting."

ABOUT THE AUTHOR

Pete Evans

Senior Business Writer

Pete Evans is the senior business writer for CBCNews.ca. Prior to coming to the CBC, his work has appeared in the Globe & Mail, the Financial Post, the Toronto Star, and Canadian Business Magazine. Twitter: @p_evans Email: pete.evans@cbc.ca

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