According to the latest data released by Statistics Canada, the Consumer Price Index (CPI) for July 2024 revealed a significant slowdown in inflation, with the index rising by just 2.5% on a year-over-year basis. This marks the slowest pace of inflation since March 2021, following a 2.7% increase in June 2024. The deceleration was observed across various sectors, including travel services, passenger vehicles, and electricity, contributing to the overall moderation in price growth.
The year-over-year increase in the CPI is a critical measure of inflation, reflecting the average change in prices that consumers pay for a basket of goods and services. The latest data from Statistics Canada indicates a broad-based decline in inflation, with significant contributions from lower prices in several key areas:
Travel Services: Prices for travel-related services, including travel tours, traveler accommodation, and air transportation, saw a notable decline. Travel tours, which had previously surged by 7.4% in June, fell by 2.8% in July. Similarly, traveler accommodation prices dropped by 3.7%, and air transportation costs decreased by 2.7% compared to the same period last year.
Passenger Vehicles: The prices for passenger vehicles continued to decline, with a year-over-year decrease of 1.4% in July. The reduction in vehicle prices was driven by a slowdown in the price growth for new vehicles, which rose by just 1.0% as inventory levels improved compared to the previous year. Additionally, used vehicle prices saw a more significant decline, falling by 5.7%.
Electricity: The cost of electricity experienced a year-over-year decrease of 0.8% in July, following a 2.4% increase in June. This decline was most pronounced in Alberta, where electricity prices plummeted by 35.5%, largely due to a base-year effect from the sharp increase in July 2023 amid high summer demand.
On a month-over-month basis, the CPI rose by 0.4% in July, a reversal from the 0.1% decline observed in June. The primary driver of this monthly increase was the rise in gasoline prices, which surged by 2.4% in July, exerting upward pressure on the overall CPI. On a seasonally adjusted basis, the CPI rose by 0.3% for the month.
Gasoline Prices: Year-over-year, gasoline prices increased by 1.9% in July, up from 0.4% in June. The acceleration in gasoline prices was particularly noticeable in the Prairie provinces, where a refinery shutdown in the Midwestern United States contributed to reduced supply and higher prices.
The report also highlighted regional differences in inflation rates across Canada. Year-over-year price growth slowed in five provinces, with Prince Edward Island and Nova Scotia experiencing the most significant deceleration.
Shelter Costs: The shelter component of the CPI, which includes expenses related to housing such as mortgage interest, rent, and utilities, also showed signs of slowing. Year-over-year, shelter costs rose by 5.7% in July, down from a 6.2% increase in June. The mortgage interest cost index, a significant contributor to the shelter component, continued to rise but at a slower pace, increasing by 21.0% in July compared to 22.3% in June.
Rent Prices: Despite remaining elevated, the rent index also saw a deceleration in growth, rising by 8.5% year-over-year in July, down from an 8.8% increase in June. The slowdown was particularly evident in Prince Edward Island, Alberta, and New Brunswick.
Fuel Oil and Other Fuels: Prices for fuel oil and other fuels, which are more commonly used for home heating in Atlantic Canada, also exhibited a base-year effect. These prices rose by 3.5% year-over-year in July, a significant slowdown from the 10.5% increase observed in June.
The latest CPI report suggests that inflationary pressures in Canada are beginning to ease, although prices remain elevated in several sectors. The deceleration in inflation is a welcome development for consumers who have faced rising costs for essential goods and services over the past few years.
However, the modest monthly increase in the CPI, driven by higher gasoline prices, indicates that inflation has not fully subsided. The Bank of Canada may view this data as a sign that inflationary pressures are beginning to align more closely with its target range.
The time will show if the data aligns with real-life scenarios and whether Canadians will find comfort in the fact that inflation is beginning to slow, offering a glimmer of hope that the cost of living may stabilize in the near future.