Is there a near peak after Canada’s inflation rate hits 8.1%?

The Canadian consumer price index (CPI) surged 8.1 per cent in June from a year earlier, up from 7.7 per cent in May, Statistics Canada said on Wednesday. It was the highest inflation rate since 1983.

Canada’s inflation soared to its highest rate in nearly forty years in June, although there are early signs that consumer price growth is close to topping out anear peak, offering some relief to households.


Financial analysts were expecting worse scenarios with inflation climbing to 8.4 per cent. The acceleration was mainly because of gasoline. Consumers paid 6.2 per cent more at the pump in June than May, and 55 per cent more on an annual basis.

The Bank of Canada, along with other central banks, has consistently underestimated the path of inflation for more than a year. For example, in April of 2021, the bank projected CPI growth of just 1.9 per cent in 2022. As inflation was picking up last year, central bankers in Canada and elsewhere said the situation would prove “transitory,” or short-lived.

Instead, consumer prices have continued to escalate, and those increases have broadened to more products and services. The Bank of Canada expects inflation of 7.2 per cent this year and 4.6 per cent in 2023, having revised its CPI forecast higher several times.

The errors in forecasting inflation are problematic. Because it takes a while for changes in interest rates to trickle through the economy, it’s important that central bankers have a somewhat accurate view of future inflation when setting their monetary policy.

Crude oil has tumbled in recent weeks, which has started to reflect in retail pricing. The national average price for regular unleaded gas was $1.87 a litre on Tuesday, down from a peak of $2.15 in early June.

Shelter and grocery costs grew at slightly slower annual rates in June, a potential sign of progress for cash-strapped household budgets. And excluding food and energy, core inflation rose 0.4 per cent in June, a slower pace than in recent months.

The slightly weaker than anticipated inflation readings will come as good news for central bankers trying to control price pressures. Moreover, the more recent fall in global commodity prices is seeing Canadian energy prices declining in July.

Central bankers are raising interest rates at the quickest pace in decades in their attempt to tamp down inflation. In less than five months, the Bank of Canada has raised its policy rate to 2.5 per cent from 0.25 per cent. More hikes are coming, bank officials have indicated.

Consumer prices are rising for many reasons, including supply-chain disruptions that have led to product shortages; much higher commodity prices, which is partly because of Russia’s invasion of Ukraine; and cheap borrowing rates that fueled a boom in home purchases.