Economics Newsletter – June 30, 2023

New UWES articles, CPI data, and more!

Written By: Benjamin Pipicelli, Lexx Thomson, & Dorje Gyaltsen

Economics Newsletter – June 30, 2023

Canada’s Economy at a Glance

Author’s Commentary

Canadian Consumer Price Index Update 

Although food price increases remain strong, some recent tamer readings of inflation point to some relief for Canadian consumers. Headline prices rose 0.4% in May for an annual rate of 3.4%. The year-over-year rate was a deceleration from 4.4% in the prior month, although that was mainly due to base effects from gas prices since last May showed close to peak prices at the pumps. Food price increases remained larger than those seen stateside, grocery store prices increased on average by 0.7% and restaurant prices increased on average by 0.5%.

The good news for Canada’s economy came from slightly softer core measures of inflation. CPI excluding food & energy rose by 0.2%. In the housing market, the 3-month annualized rate decelerated to 2.8% from 3.4% in April. Lastly, the annual pace of inflation went down sharply in household operations/furnishings, clothing, and car purchases.

Overall, today’s data does not change the fact that inflation is still surpassing the central bank’s prior April monetary policy report forecasts. However, the tamer soft core readings might give the bank some breathing room before they have to deliver another hike.

News and Noteworthy


Inflation may be slowing, but here’s how much food prices went up in May

Canadians may have seen some inflation relief in May as the headline figure slowed to 3.4 percent, but the same cannot be said for grocery prices. Food prices have remained stubbornly high in Canada. The price of food purchased from restaurants jumped 6.8 percent in May on an annual basis, while grocery store prices increased 9 percent year-over-year. On a monthly basis, food prices increased 0.8 percent or a seasonally adjusted 0.5 percent. “Food inflation continues to bite… keeping the yearly rate at 8.3 percent year-over-year, despite the slowing on the producer front,” BMO macro strategist Benjamin Reitzes wrote in a research note on Tuesday. Read more.


Inflation slows to a 3.4 percent annual increase in Canada

Inflation in Canada increased by 3.4 percent in May, the smallest rise since June 2021, providing Canadians with some relief from skyrocketing prices. The slowdown in the Consumer Price Index (CPI) released Tuesday by Statistics Canada also provides some relief for the Bank of Canada, bringing a small dip in the odds that the central bank will increase its benchmark interest rate next month, although a hike is still the more likely scenario. But other price pressures remain elevated, with rising mortgage interest contributing the most to the annual increase in CPI. Higher travel accommodation and tour costs also contributed to the increase in Canada. Read more.


Jet fuel to dominate oil demand growth in 2023: Capital Economics

Jet fuel will be the biggest driver of oil demand growth in 2023, according to energy analysts at Capital Economics, who expect a boost from more international flights. While aviation represents only a small share of global oil consumption, the London-based research firm says jet fuel could account for 64 percent of the 1.4 million barrel per day (bpd) rise in overall demand for crude it expects this year. Capital Economics sees jet fuel demand climbing by 900,000 bpd in 2023. “Aviation will account for the bulk of oil demand growth,” analysts wrote in research published Wednesday. “International flight activity continues to grow in China and the rest of the world.” Read more.


First-time buyers worried about down payments falling short: Royal LePage

A new Royal LePage survey finds more and more first-time homebuyers are worried their down payments will fall short, causing them to lose out on a home they love. Sixty-seven percent of buyers who recently bought their first home had worried financial constraints would affect their purchase, up from 62 percent in 2021 and 57 percent in 2019, according to the survey. “That first transaction is the most difficult, and in today’s environment, first-time buyers are faced with large price tags, high carrying costs and the added challenge of qualifying for lending at higher rates due to the stress test,” Phil Soper, president and CEO of Royal LePage, said in a release on Thursday. Read more.


Small businesses turning to credit cards to ‘keep the lights on: Equifax

Small businesses are increasingly turning to high-interest debt such as credit cards to keep the lights on, according to a new survey from Equifax Canada. “I think what we’re really starting to see now in the economy is the fallout of the pandemic. A lot of small businesses have a lot of debt accumulated from a pandemic,” Jeff Brown, head of commercial solutions at Equifax Canada, said in a phone interview. “We’re seeing this in terms of the usage of their financial products. They’re using a credit card to grow, or at least as a way to keep the lights on.” Read more.

Economics Society News, Events, and Articles

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