Gas may be cheaper, but otherwise prices are still on the rise

If anyone thought Canadians filling up with gas this week would be thrilled by the fact that fuel prices are the reason why inflation has declined, well, for the most part, they're not.

"It's way too high," said Cameron Benn, as he filled up his truck Tuesday, paying $1.66 per litre. "The fact that this sounds cheap is just insane."

In relative terms, there is no question the price of gas is a lot cheaper right now than it was earlier this year. That $1.66 is down from more than $2 a litre just a couple of months ago.

But it's still more expensive than it was a year ago — and drivers have long memories.

Living in a big country with long driving distances, Canadians use a lot of gas. So even what Statistics Canada called a "slower year-over-year growth in gasoline prices" was enough to bring Canadian inflation down in July, dropping from 8.1 to 7.6 per cent.

But for anyone who travels by transit, bikes, walks or drives an electric car, the fall in inflation has not affected them one bit. In fact, for those who don't use gas, inflation is higher than ever. And for those on a fixed income, or those whose incomes have not kept up with inflation this year, things are even worse.

"Excluding gasoline, prices rose 6.6 per cent year over year in July, following a 6.5 per cent increase in June, as upward pressure on prices remained broad-based," Statistics Canada reported on Tuesday.

The problem is our old friend "everything inflation," which the statisticians call core inflation, because it leaves out all the things that shoot up and down, like pump prices. Core is still out of its target range and trending upward.

That leads to two problems. One is that consumers, many of whom are already convinced that inflation is much higher than Statistics Canada is reporting, will still see prices on day-to-day purchases continue to rise.

The second, as several economic commentators suggested after the consumer price index was released, is that we should expect the central bank to keep hiking interest rates.

While the Bank of Canada keeps one eye on the headline inflation number that we normally report in the media, central banks prefer to use core because it offers a better long-term indication of both inflation and inflationary expectations.

It is not at all clear that the Bank of Canada's recent rate hikes were responsible for bringing gas prices down. Gas prices depend on the global oil price, global demand and international politics — all of which are volatile.

As Benn said, he's worried that gas prices could rise again.

That means if it really is mostly gas that's driving inflation lower, there is little evidence the Bank of Canada's rate rises have so far had an effect.