“Supply chain bottlenecks – which was one of the factors influencing the substantial rise in inflation earlier this year – still persist, but they have started to ease to some extent,” Stonehouse says. “Commodity prices have also begun to come off for a variety of reasons, including a supply pick-up in some areas and easing demand.”
Stonehouse points out that prices of certain agricultural foodstuffs and energy-related commodities have moderated from the substantial spike they experienced following the invasion of Ukraine. Demand for gasoline, he notes, has softened as consumers adjust their travel plans and driving habits in response to surging prices.
Another factor in the equation has been the shift in the margin from goods to services, as consumers coming out of pandemic lockdown unleash their pent-up demand for experiences outside the home. That appetite has been difficult to address in some sectors, however – cancellations at airlines and airports struggling to accommodate rapid increases in volume have made many headlines this summer – which has caused some softening of demand on the services front as well.
“There’s also the base effects. We’re working our way off some pretty high numbers last year that are starting to percolate through and result in a moderation in inflation,” Stonehouse says. “Both the Fed and the Bank of Canada have really ramped up hard in terms of their tightening policy only since March, and that tends to work with a six- to 12-month lag … I think we’ll see the impact of monetary policy tightening continue to weigh on inflation as the next few quarters unfold.”
The winds favouring an easing of prices appear to be gathering, but the jury’s still out on where inflation will go from here. While the CPI in the U.S. came in cooler than expected, Stonehouse notes that food prices haven’t shown that same deceleration. Raw commodity prices have also descended to their original levels from before the Russia-Ukraine conflict first broke out, reflecting better-than-feared output of certain crops in certain areas.
