In a sign that the economic tide is turning, Canada’s inflation rate moved higher in June. Statistics Canada puts the annual inflation rate at 0.7% for the month. That is more than double the 0.3% rate forecast by economists, and it is a significant reversal of the 0.4% drop in inflation in May and the 0.2% decline in April.
Most of the increase came through higher prices for cars, clothing, energy and food.
While runaway price increases are bad, moderate, reliable inflation is good. It encourages spending and keeps money flowing through the economy. Deflation – particularly if it persists – is bad because consumers tend to stop spending, knowing that they will be able to make their purchases later for less. That keeps money out of the economy leaving companies with nothing for hiring or raises.
Some pent-up demand from the early days of the pandemic lockdown may have contributed to the spending that pushed inflation back into positive territory. But Canadian consumers are showing increasing optimism about their finances.
The latest quarterly survey from debt consultants MNP suggests 61% of Canadians feel confident they will be able to cover their living expenses for the next 12 months without going further into debt. A 3-point increase over the previous quarter. Compared to pre-pandemic levels, significantly more Canadians rate that their current debt situation as excellent (43%, +5). More than a quarter (27%, +1) perceive their debt situation to be better now than it was a year ago — and more than a third (35%, +1) believe it is better now than it was five years ago.