Analyst explains falling inflation rate in Canada

Canada’s inflation rate dropped to 3.4 per cent in May — and that number is expected to drop again.

“There’s economics at play and a little bit of politics at play,” business analyst Paul Martin told Gormley this week. “We expect another big drop next month where we might actually even start to touch that Bank of Canada target range (of two per cent).”

The country’s inflation rate in April was 4.4 per cent.

Martin said the biggest drop has been seen in energy prices, specifically the price of gasoline. It’s down by 18 per cent across the country.

“In Saskatchewan we didn’t see much of a change in gas prices,” said Martin. “But you did around the country.”

While gasoline has gone down, grocery prices have been on the rise.

The price of groceries has gone up by nine per cent, which Martin said is really beginning to affect people’s daily lives. He predicts people will soon start turning to other methods of getting their food.

“Farmer’s markets will be popular,” said Martin. “People will grow their own gardens in a bigger way than we have in a long time.”

Martin doesn’t expect inflation to stay this low for long. He said mortgage prices will cause a rise in inflation.

Martin used the example of the housing market in Canada’s biggest cities. The price of million-dollar homes in Toronto and Vancouver could be seeing an increase of up to $30,000 a year in payments.

“As people’s mortgages come up for renewal, they’ll be renewed at a much higher rate and that’s going to be inflationary,” said Martin.

He explained that will show up as inflation for the country at first, but over time, it will be seen as deflationary.