The Argus Report Read about it!
Canada’s inflation rate fell to a -0.4 per cent annual pace in May, the second month in a row below zero as cheaper gasoline offset price increases elsewhere.
Canada’s inflation rate fell to a -0.4 per cent annual pace in May, the second month in a row below zero as cheaper gasoline offset price increases elsewhere.
Statistics Canada reported Wednesday that four of the categories the data agency tracks were down in May compared to last year’s level, including transportation, clothing and footwear. The other four were higher, including food and shelter costs.
The price of gasoline was the biggest influencer on the numbers, as pump prices were 29.8 per cent lower in May 2020 than in May 2019. If gasoline is stripped out of the numbers, the inflation rate would have been 0.7 per cent for the month. That’s still the softest showing since 2013, but it is at least in positive territory.
“The economic hit from COVID-19 and the lockdown are weighing heavily on consumer prices, which fell the most since the 2008-2009 financial crisis,” BMO economist Benjamin Reitzes said.
Beneath the headline number, a number of goods and services saw prices increase over the past year, including:
- Car insurance, which went up by 6.4 per cent.
- Meat, which went up by 7.8 per cent.
- Mortgage interest costs, which went up by 3.3 per cent.
- Restaurant food, which went up by 2.2 per cent.
In addition to gasoline, a number of items were much cheaper in May than they were a year ago, including:
- Travel accommodations, down 21.3 per cent.
- Telephone services, down 9.5 per cent.
- Women’s clothing, down 5.9 per cent.
- Electricity, down 4.6 per cent.
Monthly changes
While the annual inflation rate went further negative in May than it was in April, gasoline prices actually bounced back up by 16.9 per cent in May from the COVID-19 low they hit in April. Compared to April, the price of meat, car insurance, recreational vehicles and cereals was also higher in May.
On the whole, however, many items saw their prices plunge in May after cratering the month before, too.
Clothing prices fell by another 1.8 per cent, bringing the two-month decline to 7.6 per cent — the biggest plunge on record, Reitzes noted.
Shelter costs fell by 0.3 per cent, mainly because of a 0.8 per cent decline in rent, the biggest drop in rental costs in 70 years worth of data. And the price of phone services and furniture fell again, by another 2.4 per cent and 3.3 per cent.
The spectre of deflation
Persistently lower prices are known as deflation, a very serious situation that can prove difficult for an economy to pull itself out of.
Because of the dramatic impact of COVID-19, it’s too early to say whether or not deflation is settling in, but at least one market analyst is suggesting it’s a possibility.
“Prices edged slightly further into the abyss of outright deflation,” market strategist Don Curren with Cambridge Global Payments said. “If deflationary trends gain momentum … they could become problematic for the economy.”
Others think things are headed in the right direction. TD Bank economist James Marple noted that the economic impact of COVID-19 continues to set records, but there are some encouraging signs that the tide may be starting to turn.
“There are promising signals in recent economic data and as economies open up, we expect to see some modest lift to consumer prices in the months ahead,” he said. “Still, it will be a long road ahead and downside risks will remain elevated until a vaccine is broadly available.”
