Consumer prices rising faster than inflation: BoC

OTTAWA — The prices Canadians have reported paying for goods and services have been rising more than the official inflation rate, a senior Bank of Canada official said.

Deputy governor Lawrence Schembri made the comment in a video speech Thursday to the Greater Saskatoon Chamber of Commerce.

A note in his speech said that while this discrepancy between perceived prices and inflation rates isn’t new, the difference between households’ perceptions in the second quarter of 2020 and April’s inflation reading was “particularly acute.”

On Wednesday, Statistics Canada reported that the annual pace of inflation fell 0.4 per cent in May, marking the second consecutive month for negative inflation after a 0.2 per cent drop for April.

The drop is mostly due to demand-driven declines in the prices of gasoline, traveller accommodation and clothing and footwear. On the other hand, price pressures on rice, toilet paper and household-cleaning products reflect shifting consumer demands, Schembri said.

Households are spending far less on items whose prices are dropping, he said, while spending more on items whose prices are rising.

Schembri said the central bank will be paying close attention to spending as restrictions due to the pandemic ease.

Uncertainty about the future “points toward a recovery that will be gradual and long-lasting,” reads the text of his speech released by the bank.

“In the meantime, households are likely to remain cautious in their spending behaviour as they adjust to a new ‘post-pandemic’ normal.”

Consumption dropped dramatically during the pandemic — a nine per cent year-over-year drop during the first quarter of 2020 — as businesses closed up and workers asked to stay at home to slow the spread of COVID-19.

Over the same period, the Bank of Canada has embarked on an unprecedented bond purchasing program to ease the flow of credit in financial markets and dropped its policy interest rate to 0.25 per cent.

Schembri said the drop of 150 basis points to the rate has been passed through to consumer interest rates to varying degrees. Since March 4, rates on fixed and variable-rate mortgages have dropped between 20 and 75 points, while rates on lines of credit have declined by 100 points or more.

As well, banks have allowed more than 700,000 households to delay mortgage payments for up to six months, and deferred payments on other lines of credit.