Inflation climbed from 3.1% to 3.4% in December, a sign the Federal Reserve will continue to have to wrestle consumer price growth down to its desired 2% level.
Forecasts had been for a reading of 3.2%.
On a monthly basis, inflation hit 0.3%, while core inflation, which strips away the more volatile costs of food and energy, was 3.9%, down from 4% in November but ahead of forecasts for a reading of 3.8%.
Still, some consumers are starting to feel better about the economy, even though, to many of them, it probably doesn’t feel like a big improvement.
But after two years of breakneck inflation that sent the cost of everyday goods and services surging, 2023 experienced a meaningful slowdown in price growth.
After it hit a high of 9% in the summer of 2022, the 12-month rate of inflation measured 3.1% in November. Economists forecast the rate to have remain unchanged for December. The Bureau of Labor Statistics will announce the latest data at 8:30 a.m. Thursday.
The rate will still be above the Federal Reserve’s inflation target of 2%. And the fact that prices in most cases aren’t actually reversing means the shell shock of the past 24 months for consumers is still wearing off.
“The good news is the rate of inflation has been steadily moderating and moving closer to the ultimate goal of 2%,” said Greg McBride, a vice president and the chief financial analyst at Bankrate. “The bad news is it doesn’t mean prices are actually falling — just that they’re not going up as fast.”
Two of the categories most affecting consumers — food at home and energy prices — have had more aggressive slowdowns in price growth than many other categories, McBride said. After it hit a high of 13.5% in August 2022, food price growth slowed to 1.7% in November.
And gas prices, which surged to almost $5 a gallon on average in June 2022, are now about $3 a gallon.
While Russia’s invasion of Ukraine produced an acute price surge for those two categories in 2021, McBride said their price growth has slowed thanks to a broader slowdown in economic growth — a trend that is likely to continue. The World Bank announced this week that it expects worldwide gross domestic product to hit just 2.4% this year, down from 2.6% in 2023, 3.0% in 2022 and 6.2% in 2021.
Yet, consumers still face everyday prices that are above pre-pandemic levels. White bread, which cost about $1.30 per pound in the winter of 2019-20, now costs about $2 per pound, according to BLS data. Ground beef has increased from about $3.87 a pound to $5.35 a pound over the same period. And a gallon of milk has climbed from roughly $3.20 to about $4.
So even as price growth continues to moderate, consumers are still adapting to a new normal.
“Consumer sentiment is still depressed overall,” said Matt Bush, the U.S. economist at Guggenheim Partners. “While the rate of inflation is slowing down, the absolute level is still really high — consumers are still unhappy with the level of prices.”
There are signs that consumer sentiment is slowly turning around now that wage growth has surpassed the rate of inflation.
Consumer confidence jumped in the final month of last year to its highest level since July. Data released Friday showed employers added 216,000 jobs in December, far more than expected, demonstrating the labor market remains robust even as it cools down.
Against that backdrop, some economists view even potentially concerning trends, like consumers’ ballooning debt burdens, as a sign that people are starting to feel a bit more optimistic as price pressures ease.
“They’re taking on additional debt because they expect to make more money,” said Joe Brusuelas, chief economist at the consulting firm RSM. Consumer debt figures don’t always paint a full picture, in part because wealthier Americans tend to borrow and repay more money at faster rates, he said. But even so, many consumers “have the capacity to pay that debt back” despite higher interest rates on credit cards to mortgages and auto loans.
“In many ways, it’s an expression of confidence,” he added.
Mark Zandi, chief economist at Moody’s, said that even as wage growth slows, it should still continue to stay above inflation.
For consumers, that means real — if small — gains.
“With each passing month, it gets a teeny bit better,” Zandi said. He continued: “There’s a slightly brighter hue in terms of people’s responses. It’s not an event; it’s a process — the feeling that wages are outpacing inflation, that purchasing power [is] improving. That’s what’s happening, but it will take a while to convince to people it’s real and sustainable.”
OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
