Two weeks ago, in a fit of collective braggadocio, Finance Minister Chrystia Freeland announced that the Trudeau Liberals’ approach to fighting inflation “is working.”
If there is a recent example of speaking too soon, this is it.
The Liberal approach is failing.
Canada’s annual rate of inflation rose higher than expected in July, something analysts say could tempt the Bank of Canada to increase interest rates again next month.
The Consumer Price Index — a broad-based measure of inflation — was 3.3% higher in July than it was a year earlier. That’s up from 2.8% in June, and substantially higher than the 3.5% expected by a consensus of economists surveyed by Bloomberg.
While that’s well below the 8.1% inflation peaked last June, it’s still above the Bank of Canada’s inflation target of 2%.
The Conservatives did not let this slip their attention.
“After declaring victory in July, it’s now clearer than ever that the Trudeau Liberals have failed to bring home lower prices for Canadians,” they wrote. “Inflation has again risen to 3.3%, and the cost of groceries has gone up by 8.5% since last year.”
“The price of housing also continues to skyrocket, with mortgage costs up by over 30%. Just ten days ago, the Trudeau Liberals claimed they were ‘making real progress,’ but struggling Canadians are still feeling the pain.”
It is easy to see why, although not so easy for the finance minister.
The Trudeau Liberals, led by Freeland’s ‘financial expertise,’ continue to pour billions on the inflationary fire with its debt and deficit strategies.
Trudeau and Freeland hit Canadians with a double tax hike this year by raising the cost of their first carbon tax and imposing a new second carbon tax on Canadians.
Trudeau’s tax grabs, in fact, are directly increasing the cost of gas and groceries, driving inflation higher.
The biggest single contributor to increased inflation, however, was higher mortgage interest, which rose by 30.6%. Excluding mortgage interest, the annual rate of inflation in July was 2.4%.
“Domestic demand in Canada’s economy continues to hum along, and as a result we expect progress on inflation to remain disappointing through the remainder of the year. This is pushing up expectations that the BoC may pursue another rate hike in the fall months,” TD senior economist Leslie Preston said in a research note after inflation numbers were released.
As also reported in the Toronto Star, BMO chief economist Doug Porter said that while the Bank of Canada had likely been expecting at least some rise, the size of the increase makes it harder for the Bank to stay mute.
“There’s no sense sugar coating this one — it is not a good report for the Bank of Canada,” Porter wrote. “We still believe that the BoC would prefer to move to the sidelines in September and give prior hikes time to work, but the inflation figures will make it a tougher call.”
Porter noted that Canada’s rate of inflation is now higher than the U.S.’s (3.3% vs. 3.2%) for the first time since before the global Covid-19 pandemic.
Last March, the Bank of Canada began an aggressive rate-hike campaign in a bid to drive inflation down.
Before the campaign, the overnight BoC interest rate sat at 0.25%. Now, it’s at 5%, its highest rate in 22 years.
After hiking the rate by 25 basis points — a quarter of a percentage point — in July, Bank of Canada governor Tiff Macklem didn’t rule out further increases, and said they’d be based on data.
“What we’re saying now is we’re taking it one decision at a time,” said Macklem. “We’re doing our best to balance the risks of under and overtightening.”
The Bank of Canada’s next rate announcement is Sept. 6
