Canada’s annual inflation rate increased to 1.9 percent in August, according to Statistics Canada’s recent report, which is the final economic data release before the upcoming Bank of Canada interest rate decision. The rise in inflation was widely anticipated, with gas prices continuing to decline in August but at a slower rate compared to the previous month, leading to the overall inflation uptick.
The downward trend in pump prices following the removal of the consumer carbon price in April has influenced core inflation numbers, resulting in a decrease in overall inflation figures for August. Economists were already predicting a 25-basis point rate cut by the central bank during its upcoming meeting, which would be the first cut since March. The inflation data released on Tuesday further supported this expectation.
Describing the situation as a “low-drama affair,” Douglas Porter, BMO’s chief economist, noted that the moderate pace of price growth is unlikely to cause significant concern for the Bank of Canada, aligning with expectations for a rate cut. Andrew Grantham, a senior economist at CIBC Capital Markets, emphasized that while the Canadian economy has managed to avoid a worst-case scenario, growth remains sluggish. He highlighted that inflation is not a major threat currently due to weakened demand and economic slack caused by slowed growth and high unemployment.
Grocery prices in August rose by 3.5 percent compared to the same period last year, with meat prices increasing by 7.2 percent. Fresh fruit prices saw a 1.1 percent decrease year over year, primarily driven by declines in grape and berry prices. Additionally, cellular service costs saw a slower decline in August compared to a year earlier, mainly due to increased prices for back-to-school cellphone plans, offset by lower prices for smartphones and tablets. Travel service prices decreased by 3.8 percent last month, influenced by reduced demand for travel to the U.S., while hotel prices rose, particularly in Nova Scotia and Newfoundland and Labrador, coinciding with the Canada Games in the latter province.
Overall, the inflation report suggests a measured approach by the Bank of Canada towards further rate cuts, as the economy seeks stimulation amid prevailing economic challenges.