Inflation Slows To 5.2% Due To Base-Year Effect, Food Prices Up 10.6%

Because of a significant increase in month-to-month inflation in February of 2022, the year-over-year inflation number looks less significant. Yet, inflation remains elevated and is far above the Bank of Canada target.

Inflation ‘slowed’ in February according to Statistics Canada. The consumer price index was up 5.2%, compared to 5.9% the previous month. However, this dip in inflation was due to a base-year effect. Since inflation rose dramatically from January 2022 to February 2022 – and the January number drops off in the 12-month inflation calculation, it gives the appearance of a significant decline in price increases:

“The year-over-year deceleration in February 2023 was due to a base-year effect, for the second consecutive month, which is attributable to a steep monthly increase in prices in February 2022 (+1.0%).”

Statistics Canada made a point of noting the significant increase in prices since

“While inflation has slowed in recent months, having increased 1.2% compared with 6 months ago, prices remain elevated. Compared with 18 months ago, for example, inflation has increased 8.3%.”

It’s also important to mention something about inflation that is often neglected. When inflation remains elevated for a significant period of time, it has a cumulative effect. A ‘lower’ inflation rate can still mean a larger actual price increase, because it is an increase from a much higher starting point. When inflation does return to the 2-3% level, it’s not like we will just ‘get back’ all the purchasing power that was lost.

And when it comes to many of the most essential things, prices are going up far beyond the overall inflation rate.

Food prices for items purchased in stores are up 10.6% year-over-year, and have gone up by double-digits seven months in a row.

Cereal prices rose 14.8, while fruit juice prices are up 15.7% due to citrus shortages. Non-alcoholic beverage prices are up 11.1%, while meat prices are up 6.2%. Baked goods rose 13.9%, the same rate vegetable prices increased. The only area of ‘relief’ in food prices was a decline in price increases for dairy products from 9.1% to 12.4%, but even that is largely illusory, since it is also due to a base-year effect. The February 2022 Canadian Dairy Commission price increase was the largest in Canadian history.

Canadians did get some actual relief with lower energy costs, which dropped 0.6 year-over-year, largely due to lower gas prices. However, some of that decline is also due to a base year effect, as energy prices rose in the first part of 2022 due to Russia’s invasion of Ukraine and the associated supply disruptions that followed.

The increase in the cost of fuel oil slowed, from 36.5% to 24.3%.

Shelter costs also rose at a slightly slower pace, up 6.1% year-over-year compared to a 6.6% increase previously.

Alberta vindicated

We often hear the Trudeau government claim they can’t really do anything about inflation since it is a ‘global problem.’ However, they have refused to take some simple steps that could have provided price relief. They have chosen to continue increasing the carbon tax, they’ve refused to repeal the carbon tax or even make a targeted move to exempt the food supply chain from it temporarily. They also refused to remove the carbon tax from the cost of home heating, and refused to suspend the gas tax.

Meanwhile, the Alberta government has shown that it is quite possible for governments to provide inflation relief through lower taxes.

Beginning January 1st 2023, the Alberta government suspended the provincial fuel tax on gasoline. That program remains in effect.

And as noted by Statistics Canada, “Among the provinces, price growth in Alberta (+3.6%) slowed the most, on a year-over-year basis, in February. Much of this slowdown resulted from lower energy prices, notably for gasoline (-13.3%) and natural gas (-10.4%).”

Alberta also saw lower childcare prices due to the federal-provincial childcare deal (33.8% decline), though that was smaller overall contributor to lower inflation when compared to lower gas prices.

The fact remains that the federal government could provide substantial inflation relief if they cut taxes, and their refusal to do so makes it abundantly clear that they don’t actually want to help Canadians ease the burden of ongoing inflation.

Ongoing elevated inflation will also force the Bank of Canada into a difficult position. Though they have paused their interest rate hikes, inflation remains well above their 2-3% target.

Spencer Fernando