New-car prices in Canada were down 3.1 percent in June, and this decline was a primary driver of lower inflation rates for the month, according to Statistics Canada’s latest Consumer Price Index report.

While the report did not delve into where used-car prices come into play, instead focusing on the new-vehicle segment, Michael Hatch — chief economist for the Canadian Automobile Dealers Association — explained to Auto Remarketing Canada that “there’s always a buffer” between new-car prices and used-car prices.

Basically, this means that if the price gap between new and used gets too close, demand can shift to the new side.

Looking at the overall data in more detail, the CPI report indicated that there was 3.1 percent year-over-year inflation in June, according to analysis from CADA.

This marks a 0.6-percentage-point drop from the previous month, a decline spurred heavily by declining new-vehicle prices.

“This is great news for the Canadian economy and the Canadian consumer,” Hatch said in CADA’s analysis.

“That overall inflation came in lower than predicted by many economists and much lower than in May is excellent news for the Canadian economy,” he continued. “That it was largely driven by an increase in the affordability of cars and trucks is great news for the Canadian consumer in the new vehicle marketplace.”

When asked to expound on the benefits to the overall Canadian auto market, Hatch explained that with the new monetary policy in Canada, “the big fear has been inflation.”

When inflation is low, it “takes off a bit of pressure” in the short-term for the Bank of Canada to raise interest rates. Although authorities can’t go forever without raising interest rates, it certainly helps out temporarily, he noted. 

Hatch also emphasized that consumers have more money to spend and car prices are lower.

“Lower prices equal greater demand,” he noted. “It’s a pretty universal rule.

“It will drive demand. There’s no doubt about it,” Hatch continued.

While Hatch said it’s difficult to quantify exactly how much demand will be spurred, he explained that a 3-percent drop in new-car prices could equal “tens of thousands” of extra sales per year.

And that’s a nice chunk of added sales in a market that averages 1.6 million annually.

More CPI Data

Looking at some additional auto-related data in the CPI report, Statistics Canada noted that new-car prices dropped “in most provinces” during the month.

Alberta (down 5.2 percent) showed the heftiest drop-off, with Quebec (down 1.4 percent) showing the most moderate decline.