Canada’s inflation shows a sharp increase, threatening Trudeau’s election campaign

In July, Canadian inflation reported the highest annual increase in almost 20 years. This could be a serious threat to Prime Minister Justin Trudeau’s election campaign.

According to Statistics Canada, the consumer price index rose to 3.7% from a year earlier – for the first time since 2011. The national inflation hasn’t exceeded 3.7% since 2003. Meanwhile, economists expected a gain from 3.1% in June to 3.4% last month.

Although it’s the fourth consecutive month of inflation exceeding the central bank’s 1-3% control limits, policy makers will probably still consider it only a temporary tendency. Governor Tiff Macklem, who predicts 3.9% inflation growth in the third quarter before slowing down at the end of 2021, has already noted there was no reason to overreact to a temporary increase.

“The Bank of Canada may tolerate higher inflation while the national economy keeps re-opening and rebounding from the previous shock, but it will react to more lasting price pressures by decreasing its monetary support,” – says James Marple, an economist at TD Bank.

Nevertheless, the growing prices come at quite an inconvenient time for Trudeau, who wants to win parliamentary majority in a snap election next month. Housing affordability is the main campaign issue and the Conservative opposition rightfully blames the Liberal government for fueling inflation with its debt-financed spending plans.

“Today’s report shows that under Justin Trudeau, Canadians are facing a cost of living crisis,” -Conservative Leader Erin O’Toole says.

The average of core inflation was up to 2.47% last month, marking the highest number since 2009.

A month-over-month comparison shows a 0.6% gain, while only a 0.3% increase was expected. Growing homeownership costs are one of the largest drivers of July’s inflation hike, following a rise in housing prices during the previous year.