Inflation Growth Hits 1.9 Percent in August

Prices at the pumps pushed Canada’s headline inflation rate up nearly 2 percent last month, according to new data from Statistics Canada.

The headline inflation rate reached 1.9 percent in August, nearly aligning with economists’ forecasts that inflation would increase to 2 percent, up from 1.7 percent in July.

The 0.2 percent increase in August was driven by a 1.4 percent increase in gas prices month-over-month, as elevated refining margins mitigated the impact of lower crude costs.

Gas prices have been on the rise in recent weeks for the first time since the removal of the carbon tax in April, but continue to be lower than they were last year.

The price of gas in August was still 12.7 percent lower compared to the same month last year, when the consumer carbon price was still in effect. However, the savings observed last month were less than the 16.1 percent reduction recorded in July, which contributed to a rise in the overall inflation rate.

Excluding gas prices, inflation was measured at 2.4 percent in August, reflecting a minor decline from the previous three months.

The inflation report also showed mixed trajectories among grocery store items last month.  

The increase in meat prices accelerated to 7.2 percent in August, up from 4.7 percent in the prior month, driven by a 12.7 percent hike in the cost of fresh and frozen beef.

The price of fresh fruit decreased by 1.1 percent, however, reversing a 3.9 percent increase observed in July, primarily due to reduced prices for grapes and cherries.

Overall, the price of groceries increased by 3.5 percent year-over-year in August, an increase of one-tenth of a percentage point compared to July, StatCan said. 

The report also found that fewer back-to-school deals for cellphone plans meant prices for cellular services also rose on a monthly basis in August, while clothing and footwear costs rose 1.7 percent year-over-year compared with a 0.8 percent increase in July. 

Reactions

Bank of Montreal chief economist Douglas Porter called the latest report from StatCan “a low-drama affair,” noting that the “pace won’t cause the Bank of Canada much stress,” keeping it on track for a rate cut on Sept. 17. 

“We suspect the Bank will continue to take it one step at a time,” Porter said in a Sept. 16 note, adding that the central bank will likely be restrained by the 3 percent year-over-year trends in some core measures.

Porter predicted that the probability of headline inflation experiencing a temporary increase in next month’s report will also be a consideration; however, he observed that the softer short-term trends in core inflation, coupled with the recent decline in employment, create conditions conducive to additional rate relief in the future.

TD Bank senior economist Andrew Hencic was more optimistic that the Bank of Canada would cut rates during its Sept. 17 decision.

“We maintain the view that the BoC will have room to deliver two cuts this year to support growth and keep inflation in the target range,” he wrote. “The economy continues to show signs of waning momentum as the unemployment rate ticks higher and job losses accumulate. Moreover, the termination of many retaliatory tariffs will help provide some offset to price pressures.” 

CIBC senior economist Andrew Grantham agreed with Hencic, predicting the bank will reduce rates by 25 basis points at this week’s meeting. He also forecast a second cut in October, saying core measures of inflation “should continue to cool.”