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Inflation is at its highest level since 2003: Statistics Canada

Year over year, prices for meat products rose at the fastest pace in August (+6.9%) since June 2020 (+8.1%)
Year over year, prices for meat products rose at the fastest pace in August (+6.9%) since June 2020 (+8.1%) (NurPhoto via Getty Images)

Inflation rose faster than expected in August.

Statistics Canada says the Consumer Price Index (CPI) rose 4.1 per cent on a year-over-year basis in August, more than the 3.9 per cent that was expected.

It’s also the fastest pace since March 2003 and up from 3.7 per cent in July.

Prices rose in seven of the eight major components.

Getting around was particularly costly. Gasoline prices were up 32.5 per cent compared to the previous year due to lower production than pre-pandemic. As restrictions eased and people started taking more trips, the traveller accommodation price index rose 19.3 per cent.

High-priced real estate also moved even higher. The homeowners' replacement cost index, which is based on new homes, was up 14.3 per cent, the largest increase since 1987. It’s also the fourth straight month of double-digit growth.


Also See: The latest real estate news for housing prices, mortgage rates, markets, luxury properties and more at Yahoo Finance Canada.

The other owned accommodation expenses index includes commission fees on the sale of real estate. It also rose 14.3 per cent.

Durable goods picked up in August by 5.7 per cent. Passenger vehicles (+7.2 per cent), furniture (+8.7 per cent) and household appliances (+5.3 per cent) were the biggest contributors to gains.

Food prices also continued to rise, up 2.7 per cent. Meat rose at the fast pace (6.9 per cent) since June 2020.

Fresh or frozen chicken was up 8.4. Fresh and frozen pork rose 9.3 per cent.

Tapering quantitative easing

BMO chief economist Doug Porter says he expects inflation to average 3 per cent this year and next.

"Some of the meaty rise was driven by reopening pressures, some by base effects (the two-year trend is a much milder 2.1 per cent), and some by (presumably temporary) supply chain issues," said Porter.

"Still, rising wage pressures, robust home prices, and firm energy costs all suggest that inflation is not about to quickly roll over as these other short-term factors fade."

Porter says Wednesday's inflation data and jobs numbers last week mean the Bank of Canada will likely stick to its quantitative easing tapering timeline.

Bank of Canada saw it coming

Even though inflation was hotter than the street had expected, the Bank of Canada says it expected it to average 3.9 per cent in the third quarter.

The central bank pays closer attention to core inflation when it comes to monetary policy, which excludes food, energy, and the effects of changes in indirect taxes. Core inflation averaged 2.56 per cent.

Capital Economics' senior Canada economist Stephen Brown says the Bank of Canada gives the CPI-common component of the core inflation the most weight.

The Bank of Canada says CPI-common is "a measure of core inflation that tracks common price changes across categories in the CPI basket. It uses a statistical procedure called a factor model to detect these common variations, which helps filter out price movements that might be caused by factors specific to certain components."

"The fact that it is still less than 2 per cent means that the further unexpected rise in inflation is unlikely to trouble policymakers too much," said Brown.

Inflation as an election issue

The Conservatives have been going after Liberal leader Justin Trudeau on the issue of rising inflation during the federal election campaign. They say Liberal spending has led to price increases.

Conservative leader Erin O'Toole called Trudeau out for Wednesday's inflation data.

"The numbers released today make it clear that under Justin Trudeau, Canadians are experiencing an affordability crisis," said O'Toole in a statement.

Liberal leader Justin Trudeau was asked about O'Toole's comments, the inflation data and his government's spending. He says the pandemic has caused a lot of disruption and he recognizes prices have gone up and families worry about affordability.

"That's exactly why our focus has been on being there to support families because making sure that small businesses + families + workers + seniors are supported through this pandemic and into the future," said Trudeau at a news conference.

At a news conference, O'Toole was asked about some concrete ways he would bring inflation down. He says he'll create competition for wireless and internet consumers, tackle price-fixing at grocery stores, and give Canadians a GST break in December.

"And we have a plan to get Mr. Trudeau's spending under control. He never wants to get it under control. Canadians deserve a government that's not going to put our future at risk, that's not going to add to the inflation problem," said O'Toole.

Jessy Bains is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jessysbains.

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