Introduction to Inflation in Canada
Temporary factors have been affecting inflation rates in Canada, but these factors are starting to fade away. According to data from Statistics Canada (StatCan), the Consumer Price Index (CPI) saw an increase in December. When gas prices are excluded, the value increases significantly, reaching the upper limit set by the Bank of Canada. One positive aspect is the slowdown in shelter costs, but this slowdown is not evenly distributed among the population. Homeowners are experiencing slowing costs, while renters are facing some of the highest rent increases on record.
Canadian Inflation Accelerates
The annual growth of the Canadian headline CPI accelerated to 2.4% in December, up from 2.2% the previous month. The headline inflation rate has been suppressed by gas prices, and December was no exception. When gas prices are excluded, the CPI annual growth rate hits 3.0%, which is a 0.4 percentage point increase from the previous month.
Food Inflation on the Rise
Food prices are a significant contributor to the increase in inflation, with a 6.2% annual increase. The surge in food prices is attributed to the HST holiday in the last two weeks of 2024, but even without this factor, food prices were already increasing at a rate of 4.2% in November. This means that food prices are growing at a rate nearly 110% faster than the Bank of Canada’s 2% target rate.
Other Drivers of Inflation
Other notable drivers of inflation include household operations, furnishings, and equipment, which saw a 3.6% annual increase in December, up from 3.3% in November. Telephone services also saw a significant increase, with 13.0% annual growth.
Inflation and Housing
The housing market is one area where inflation is slowing down, but this slowdown is not evenly distributed. Shelter costs slowed to 2.1% annual growth in December, down from 2.3% in November. However, this relief is primarily being felt by homeowners, who saw owned accommodations increase by only 1.3% annually in December. Renters, on the other hand, are facing significant increases, with annual rent growth of 4.9% in December.
The Reality of Rent Increases
Despite reports of falling rents in the media, the reality is that rent increases are still significant. The discrepancy comes from the way rents are measured. While some rental firms report asking rents for vacant units, StatCan measures the actual rents paid, which is a more accurate reflection of the cost of living. The 4.9% annual rent growth in December marks the fourth-largest increase for the month since 1988.
Conclusion
In conclusion, inflation in Canada is on the rise, driven by factors such as food prices and household operations. While there is some relief in the housing market, this is primarily being felt by homeowners, with renters facing significant increases. It’s essential to understand the different ways that rents are measured to get an accurate picture of the cost of living. As the temporary factors affecting inflation continue to fade, it’s likely that inflation rates will continue to rise, making it essential for individuals and policymakers to be aware of these trends.
