Quick Take

Inflation slows as prices for air travel and accommodation tumble

Woman at a store with a shopping cart, looking at her shopping list

Conference Board of Canada Economist Anna Feng offers the following insights concerning today's Consumer Price Index (CPI) data:

Year-over-year growth in the Consumer Price Index slowed to 0.1 per cent in July, mainly because of suppressed air transportation and travel accommodation prices as well as weak oil demand. Core inflation sat at 1.6 per cent, 0.4 percentage points below the Bank of Canada’s 2.0 per cent target. Despite weak inflation in July, we expect inflation to accelerate in the near term as COVID-19 weighs on business’ operating costs, which will eventually lead to higher prices for consumers.

  • Year-over-year inflation inched up 0.1 per cent in July, down from a 0.7 per cent gain in June.
  • Gasoline prices in July were 14.9 per cent lower than a year ago, and 6.1 per cent below February levels. On a monthly basis, gasoline prices rose 4.4 per cent in July, down from a double-digit increase in May and June. Fears of prolonged COVID-19 measures due to a potential second wave is driving down the expectation of global fuel demand, weighing on oil prices. Excluding gasoline prices, inflation was up 0.7 per cent in July compared to a year ago.
  • Air transportation prices weighed on top-line inflation as airlines used promotions to attract wary travelers. Those measures drove air transportation prices down 8.6 per cent in July, compared to last July. Little demand for travel also led hotel prices to drop by 27 per cent on a year-over-year basis.
  • Averaging the Bank of Canada’s three measures of core inflation increased 1.6 per cent in July, 0.4 percentage points below the Bank’s 2.0 target.
  • Overall, July’s slowdown in the Consumer Price Index reflects suppressed consumer demand, especially for travelling, amid the global pandemic. Nevertheless, we expect that businesses will pass the higher operating costs needed to operate safely during the pandemic on to consumers, driving prices up over the near term.

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Anna Feng

Anna Feng

Economist

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