Yahoo Finance Canada's inflation picks up speed in August
Canadian inflation stayed stubbornly high in August, accelerating to a four per cent increase year over year, up from 3.3 per cent in July.
The consumer price index reading from Statistics Canada marks the second month in a row that price pressures have accelerated, pushing inflation well out of the Bank of Canada’s target range of one to three per cent, even after the most aggressive interest rate hiking cycle in its history.
Both core and trim CPI — the measures the Bank of Canada favours when considering inflation since they strip out the more volatile items — also accelerated in August.
While the Bank of Canada still has another inflation print to peruse before its next rate decision in October, Bank of Montreal chief economist Doug Porter said this latest read does complicate matters for the central bank. In a note to clients Sept. 19, Porter said the continued heat in those core measures will make the lives of Bank of Canada governor Tiff Macklem and his deputies more difficult, and that he doesn’t expect the September data to provide much relief.
“Things just got a lot more interesting for the Bank of Canada, and most definitely not in a good way. We all knew that the extended back-up in gasoline prices was going to be a headache for headline CPI and inflation expectations, but the inconvenient truth is that core has suddenly heated up as well,” he said.
“Unfortunately, we suspect that with oil firing higher and core inflamed again, that report will be no better than today’s — second verse, same as the first, a little bit louder and likely a little bit worse.”
Inflation gains were driven by higher year-over-year gasoline prices, up 0.8 per cent, the first increase since January and a sharp difference from the 12.9 per cent decrease in July. Part of that is due to so-called base effects: volatility in prices a year ago can skew increases or decreases in the this year’s inflation print.
While this inflation print did exceed expectations for a 3.8 per cent increase, Royce Mendes, managing director and head of macro strategy at Desjardins Group, said he expects the Bank of Canada will stay on the sidelines when it comes to a hike in October, given we’re still seeing the lag effect of prior increases work their way through the economy. In a note to clients, Mendes said that though he believes the communication from the central bank will remain relatively hawkish, it’s unlikely they’ll raise rates at the next meeting.
“The central bank is unlikely to change course based on one reading. There continue to be signs that the economy is stagnating even though the lagged impacts of monetary policy have yet to make their way through the system. As a result, expect policymakers to remain hesitant about raising rates any further this cycle even if they continue to talk tough.”
Canadians looking for a home also took a hit, with shelter costs accelerating to six per cent in August, up from 5.1 per cent in July, largely driven by the rental sector. The mortgage cost index was up 30.9 per cent in the month, reflecting higher borrowing rates. That’s proven to be a persistent source of the stubbornly-high inflation rate, induced by the central bank’s own efforts to curb price pressures in other areas of the economy.
Pain in the produce aisle, however, eased in August, while still remaining high. Grocery price inflation dropped to 6.9 per cent from 8.5 per cent in July, largely due to lower prices for fresh fruit, cereal and chicken. But consumers paid higher prices for beef and coffee.
Grocery prices have proven a particularly thorny political issue, prompting the federal government to call the heads of the large grocers to Parliament Hill on Sept. 18 to discuss ways to drive down prices and ease pressures on the consumer.
• Email: IVandaelle@postmedia.com
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