Remember five years ago, when you could buy a cup of coffee for a dollar? Or an ice-cream for three dollars? You probably don’t remember this, but since it’s in my line of work: Remember when you could build an elementary school for $20 million? Now try $40 million.... on a good day.
Remember when we were all angry about the carbon tax, thinking it’s removal would solve all our problems? I guess it helped. In May, inflation fell below 2% for the first time in three years. But..... when you remove the one-time drop in gas prices, it actually didn’t.
Statistics Canada doesn’t like to use that inflation number because it reflects a one-time price decline. Real inflation – what they call “core” inflation – is closer to 3%. This also matches the inflation rate in the US, where they never had a carbon tax. They have tariffs, but that's a different story.
Tariffs or no tariffs, prices are now what they call “sticky.” You just can’t get them off of you.
In case you missed it, let me give you a rundown of June’s inflation report. I know most of you probably dug into the numbers (no?), but here’s a quick recap of how much prices have increased from one year ago:
- Grocery prices: up 2.8%
- Furniture: up 3.3%
- Rent costs: up 4.7%
- Mortgage interest costs: up 5.6%!!
- Passenger vehicles: up 4.1%!!
Some of these increases, particularly for groceries and furniture, may be tariff related, but the rates have been “sticky” for quite some time. Just ask my wife, who knows the price increase of every grocery store item over the last five years. And the Bank of Canada can’t do much about it. They don’t want to hit us with an interest rate hike at this time of economic uncertainty, but they also can’t afford another rate cut when inflation is increasing again.
In the US, inflation rose from 2.4% to 2.7% from May to June. That’s a problem, especially when the president is breathing down the neck of the Federal Reserve chair. Donald Trump has called Jerome Powell “a complete moron” and a “major loser”. This is, by the way, the same man he appointed to the position in 2017 when he was president the first time.
Trump calls him names because he won't lower interest rates. Americans might like this in the short-term, but it could cause problems down the road.
The last time Powell cut rates under pressure – in 2021-22, just as people began to leave their homes to travel – the economy took off, but so did inflation. Powell remembers that well. It got so bad, that people started hating life... and the current president. If Trump isn’t careful, it will happen again.
Free money is always nice. We took it for granted for over a decade. Paying a two to three percent mortgage rate was sweet, but a historical anomaly.
Now, debt takes on a whole new meaning. It’s costly to borrow, for individuals and governments. Historically, that's been the norm. Hence, why debt has been viewed as bad. Yeah, remember that?? If you're really young, ask your grandparent.
It may be time to recalibrate our finances accordingly, to incorporate “core” inflation into our long-term planning, whether we see it or not.
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