Canada’s inflation cools to 2% in August, the smallest gain since early 2021

September 17, 2024 Canuck

OTTAWA –

Canada’s annual inflation rate reached the central bank’s 2 per cent target in August, its lowest level since February 2021, data showed on Tuesday.

The closely watched core price measures also cooled to their lowest levels in 40 months while month-on-month consumer prices deflated by 0.2 per cent, Statistics Canada said.

Analysts polled by Reuters had forecast the consumer price index (CPI) would cool to 2.1 per cent from 2.5 per cent in July on an annual basis, and expected it to be unchanged on a monthly basis.

The Canadian dollar weakened on the news, dipping 0.2 per cent to C$1.1361 to the U.S. dollar, or 73.45 U.S. cents.

The easing of price pressures was primarily helped by a drop in prices of gasoline, telephone services and clothing and footwear, while shelter costs – mortgage and rents – continued to cool at a tepid pace as rents maintained their relentless rise.

At the Bank of Canada’s monetary policy decision announcement earlier this month, Governor Tiff Macklem said the central bank had to increasingly guard against the risk that inflation could fall below its target as economic growth was weak.

The BoC has reduced its key policy rate three times in a row, cutting by a cumulative 75 basis point to 4.25 per cent.

Money markets are fully pricing in 25-basis-point rate cuts at each of the last two monetary policy meetings of 2024. Expectations of a jumbo 50-basis-point cut next month rose to 47.5 per cent from 46 per cent before the data were released.

“Inflation remains unthreatening and the Bank of Canada should now focus on trying to stimulate the economy and halting the upward climb in the unemployment rate,” Andrew Grantham, senior economist at CIBC, wrote in a note.

“We continue to forecast a further 200 bp of interest rate cuts between now and the middle of next year,” he said.

The BoC had predicted annual inflation to be at 2.6 per cent this year and fall to 2.4 per cent next year before coming down to its mid-point of the target range of 1-3 per cent in 2026.

CPI-median – or the price change located in the middle of the CPI basket – slowed to 2.3 per cent in August from 2.4 per cent in July annually. CPI-trim – which excludes the most and the least volatile price items – cooled to 2.4 per cent from 2.7 per cent.

Gasoline prices, which contributed the most to the fall in inflation, fell by 5.1 per cent and those for clothing and footwear fell by 4.4 per cent.

Shelter costs, which account for close to 30 per cent of the CPI basket, rose 5.2 per cent in August, from 5.7 per cent in July, primarily led by mortgage interest costs and rents.

Mortgage interest costs slowed to 18.8 per cent in August from 21 per cent in July, while rents rose 8.9 per cent from 8.5 per cent.

Mortgage interest costs and rent remained the largest contributors to the increase in the CPI in August, StatCan said.

(Additional reporting by David Ljunggren in Ottawa; Editing by Dale Smith, William Maclean)

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