Yahoo Finance Inflation in Canada slows for third month in a row, rising 6.9% annually
Inflation cooled slightly for the third month in a row, thanks to lower gasoline prices, Statistics Canada said on Wednesday, but the cost of food continued to soar in Canada.
Canada’s annual inflation rate slowed to 6.9 per cent in September, down from 7 per cent in August, marking the third consecutive deceleration in the Consumer Price Index (CPI). The rate was just above economist forecasts of 6.8 per cent, according to Reuters.
The increase puts further pressure on the Bank of Canada as it gears up for an interest rate decision on Oct. 26. Following the release of inflation data, traders shifted bets towards a larger rate hike next week, with markets now pricing in a 60 per cent chance of a 75 basis point increase.
Gas prices were up 13.2 per cent year-over-year, a decline from the 22.1 per cent annual increase reported in August. On a monthly basis, gas prices dropped 7.4 per cent in September following a 9.6 per cent increase in August.
While gas price increases have slowed, food prices in Canada continue to soar, with food purchased from stores jumping 11.4 per cent annually, the fastest year-over-year increase since August 1981. The increase in food prices was broad-based, with Canadians paying 7.6 per cent more year-over-year for meat, 9.7 per cent more for dairy products, 14.8 per cent more for bakery goods, and 11.8 per cent more for fresh vegetables. Fresh fruit prices were up 12.7 per cent, with the cost of apples up 17.3 per cent and oranges up 13.5 per cent.
Excluding food and gas, prices increased 5.4 per cent in September, up from a 5.3 per cent jump in August. On a seasonally adjusted monthly basis, the CPI was up 0.4 per cent, up from 0.1 per cent in the previous month.
The Bank of Canada has clearly not slayed the inflation dragon yetKaryne Charbonneau, CIBC Capital Markets
"There will be some long faces at the Bank of Canada this morning as inflation cooled less than in expected," CIBC Capital Markets economist Karyne Charbonneau said in a note to investors on Wednesday.
"The Bank of Canada has clearly not slayed the inflation dragon yet, and is therefore set for another large increase in interest rates of at least 50 basis points next week."
BMO Capital Markets chief economist Douglas Porter said in a note to investors on Wednesday that "bluntly, inflation did not ease as much as anticipated last month" and remains "extremely persistent and sticky at above 5 per cent."
"Combined with the Bank of Canada's recent tough rhetoric, the recent weakness in the Canadian dollar, and the strong likelihood that the (Federal Reserve) hikes by 75 basis points at the next FOMC, we are now expecting a like-sized 75 basis point hike next week from the Bank," he wrote.
Provinces with the highest inflation
The province with the highest inflation rate in September was Prince Edward Island, which saw CPI increase 8.4 per cent annually, followed by Manitoba (8.1 per cent), British Columbia (7.7 per cent) and the Northwest Territories (7.7 per cent). Nunavut had the lowest inflation rate at 5 per cent. Ontario's inflation rate was up 6.7 per cent, Quebec's up 6.5 per cent, Alberta's up 6.2 per cent while Nova Scotia and New Brunswick were up 7.3 per cent and 6.8 per cent, respectively.
High prices have pushed more Canadians to cut back further on spending. A Yahoo/Maru Public Opinion poll released on Monday found that rising prices has prompted 65 per cent of Canadians to set stricter priorities and reduce spending. The poll also found that 53 per cent of respondents say they are "worried" because inflation is causing serious money issues for them, while 13 per cent say they are "genuinely panicked" due to the drastic lifestyle changes they are having to make to deal with rising prices.
In response to rising prices, the Bank of Canada has aggressively hiked its benchmark interest rate. The rate currently sits at 3.25 per cent, up from 0.25 per cent in March, leaving many Canadians feeling the pinch. A separate Yahoo/Maru Public Opinion survey released last Friday found that 57 per cent of Canadians personally feel the impact of rising interest rates, with 18 per cent saying they are "worried sick" about the effects rate hikes could have on them or their families.
Correction: The original version of this story misstated the number of months over which inflation has cooled. This has been published under a new URL to correct the error.
With files from Bloomberg
Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.
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