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Inflation peaked at 8.1 per cent in June, 2022.JONATHAN HAYWARD/The Canadian Press

Peter Phillips is the distinguished professor of public policy at Johnson Shoyama Graduate School of Public Policy, University of Saskatchewan.

The headline news in Canada is how high inflation, especially for food, has been punishing families. However, while we have undoubtedly had a bout of inflation, there is little evidence in the data that we have much of a problem going forward.

The challenge we have is that we are mostly talking about rear-view mirror data.

Inflation peaked at 8.1 per cent in June, 2022. By March, 2023, the year-over-year rate of change in the price index has moderated to 4.3 per cent, with food prices attracting the most attention, as they are on average about 9-per-cent higher than this time last year.

But if we keep looking at only this one indicator of inflation, governments are going to make some major policy mistakes, and workers, consumers and companies will misjudge the market.

While the year-over-year rate of inflation tells us something, it is a slow moving and largely distant measure of what is going on now. If we shorten the focal distance, we can use the seasonally adjusted measure of consumer prices, which allows us to get a sense of month-to-month changes. Using this data, we see that inflation may be more under control that we often acknowledge.

Month-to-month data show more of a current picture than year-over-year numbers, which are a bit of a lagging indicator. The month-to-month changes in the seasonally adjusted rate of inflation peaked at 12.2 per cent on an annualized basis in March, 2022 – three months before the year-over-year rate peaked at 8.1 per cent. Now, the seasonally adjusted monthly rate shows that inflation is running at about 1.6 per cent in the last quarter, compared with the headline year-over-year rate of 5.8 per cent over the same period.

Shifting our attention to the months ahead, we have at least three types of data we can use to look at underlying pressures for future inflation.

First, commodity prices tend to swing widely, which can cause price pressures. The Bank of Canada commodities price index shows that prices almost quadrupled in May, 2022 – partly with recovery from the COVID-19 pandemic, and partly in response to market uncertainty after the Russian invasion of Ukraine. Since then, however, the index has fallen about 33 per cent to its lowest point since early 2021 – with price declines accelerating in early 2023.

A second factor that can contribute to higher prices is gains in wages, which on average represent about half of the cost of most goods or services. Recent data shows that average weekly earnings, including overtime, have for the most part remained modest, with year-over-year gains in January averaging 3.1 per cent for hourly workers and 1.5 per cent for salaried workers. Collective bargaining agreements sometimes signal market changes, but over the last 12 months, they have been about the same for all workers.

A final factor that can contribute to inflation is the external value of the Canadian dollar, given that many of the goods we buy are imported. Generally, a drop in the dollar raises our domestic prices, as it costs more to import goods. Between May, 2021, and October, 2022, the dollar dropped by a bit more than 10 per cent – in effect adding about 0.6 per cent to the rate of inflation. But since then, the dollar has been mostly steady in the range of US$0.73 to US$0.75, with no major effect on our prices.

Of course, just because inflation appears to be waning, it does not mean that prices are falling back down yet. But changing the focus of the analysis suggests that we probably are past the worst, and now should be planning for a return to a low-inflation future.