rates
02. rates The Bank of Canada’s fight against inflation has stretched beyond the two-year mark. The good news is that with broad-based declines throughout the consumer price index, inflation has settled back to a stable and predictable level.
THE JOB IS DONE
Inflation is like your water heater: you don’t really pay attention to it until it breaks. The good news for most of us (if not the Bank of Canada) is that fairly soon we can go back to not worrying about it as intently. The overall rate of inflation has been inside the Bank’s target range (of 1-3%) all year and has been trending downward, most recently sitting at 2.0% in August. The overall decline in inflation has been broad-based throughout the Consumer Price Index (CPI) and shows an economy that has responded predictably to restrictive monetary policy. Notably, core measures of inflation—which are of particular importance to the Bank as they strip out the most volatile components of inflation, and look at how prices for more stable goods and services are evolving—are all below 2.5% and on a downward trend.
The biggest contributor to inflation today is the shelter component, which is rising at an annual rate of 5.3%. It remains elevated for two reasons: mortgage interest and rents. Both of these elements have seen reductions in their rates of increase of late but both have been pushed upward precisely because of high interest rates. As rates come down, so too should those components of shelter inflation. In fact, without shelter, all other prices in the CPI rose just 0.5% over the past year. With that said, one can parse the CPI in myriad ways to examine price changes of just about anything, from potatoes to non-electric kitchen utensils, and find prices moving in different directions. The bottom line is that inflation is back to target and we can soon stop parsing every possible permutation of the CPI before it drives us nuts (and seeds).
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