Canada’s inflation rate has notably decreased to two percent in August. This is reported as per what Statistics Canada had mentioned on Tuesday. This indicates that it is finally hitting the Bank of Canada’s target in its long campaign to cool price growth. Plus, the Royal Bank of Canada has begun to aggressively hike the interest rates in April 2022. This is important in order to tame the skyrocketing inflation, and it also made its first rate cut since March 2020 in June.
The Royal Bank of Canada Governor, Tiff Macklem, mentioned in one of his interviews,
“Our confidence that inflation will continue to move closer to the two percent target has increased over recent months.”
On top of that, the last month’s two percent rate effectively marks the slowest pace of growth. This was recorded in February 2021. This means that the Royal Bank of Canada preferred strong core measures of inflation, which also ticked down a notch. In this regard, the CIBC senior economist Andrew Grantham wrote in a note to his clients,
“Inflation remains unthreatening and the Bank of Canada should now focus on trying to stimulate the economy and halting the upward climb in the unemployment rate.”
He also mentioned more with regards to the Royal Bank of Canada, how,
“We continue to forecast a further 200 [basis points] of interest rate cuts between now and the middle of next year.”
Royal Bank of Canada: Where did Inflation Go Down?
According to the Royal Bank of Canada, the Inflation edged down in August. This was recorded mostly due to a drop in gasoline prices. These are what is considered volatile. Plus, when gasoline is excluded, the rate came in at around 2.2 percent. This means that the target of the Royal Bank of Canada was fully accomplished.
Is Royal Bank of Canada Target Completion A Moment to Celebrate for Fellow Canadians?
Although, the target of the Royal Bank of Canada has been achieved, Canadians might not be feeling the impact of the lower inflation. This is especially when they’re shopping for groceries or other goods. This is because while the pace at which prices grow has slowed, they have mostly remained elevated. This was said Pedro Antunes, chief economist at the Conference Board of Canada.
“The bank isn’t targeting for prices to come back down to where they were pre-pandemic or [before] that big inflation period. What they’re really looking for is, going forward, to have inflation stabilized,” he said.
Antunes said that there’s “no great science” behind the two percent target. However there are two main reasons for it.
“For one, it’s important to have low and stable inflation so that we are not affecting people’s livelihoods,” he said. For the people on fixed incomes, the inflation needs to remain low enough so that they maintain their purchasing power.
However, the Royal Bank of Canada does not necessarily want to reach the zero percent inflation. This is because that can lead to negative inflation. This is also called deflation.
“Why is that bad? Well, if prices are dropping, people tend to hold off on purchases,” Antunes said. “And it can [kind of have] a negative impact on the economy.”
What’s Coming Forward by the Royal Bank of Canada?
So far, the mortgage interest and rental costs were recorded to be the largest contributors to the consumer price index in August. Although mortgage interest growth is slowing, it still went on to be the highest as per what the data agency noted.
Grantham, the CIBC economist, noted that if mortgage interest costs were effectively excluded from overall inflation, then the rate would have come in at 1.2 per cent year over year.
Reports suggested that consumers had paid 2.4 percent more for groceries in August. This effect is the result of what economists call to be a base-year effect. This is the impact of effectively comparing prices in a given month to the same month a year earlier.
Meanwhile, on the other hand, the price of clothing and footwear declined. This is quite atypical during a back-to-school shopping month. Plus, the electricity prices also grew at a slower pace. Reports have come in stating that the Royal Bank of Canada will hold its next interest rate meeting on Oct. 23.
This has led some economists to ask the question, which isn’t whether the central bank will cut, but whether the cut will be 25 basis points or 50.
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