Canada’s inflation rate eases to 7%, but food prices still climbing rapidly
Statistics Canada said on Tuesday, Canada’s inflation rate cooled to seven per cent in August.
Economists had been expecting the rate to come in at 7.3 per cent, after inflation rose to a 40-year high of 8.1 per cent earlier this summer.
Instead, the rate fell by even more than expected, in large part because gasoline got much cheaper during the month.
Gas prices fell by 9.6 per cent in August from where they were the previous month. That is the biggest one-month drop in gasoline prices since April 2020, when the pandemic was just beginning.
While gasoline got a little cheaper, food prices continued their increase — the cost of groceries has risen by 10.8 per cent in the past year.
That’s the fastest increase in the typical grocery bill since 1981.
“The supply of food continued to be impacted by multiple factors, including extreme weather, higher input costs, Russia’s invasion of Ukraine and supply chain disruptions,” the data agency said.
Bakery products are up by more than 15 per cent in the past year, while fruit is up by more than 13 per cent.
Shelter costs dropped for the first time since January, 2021, helped by a modest decline in rents. Clothing and footwear prices also fell. The average of the Bank of Canada’s core measures of annual inflation – which strip out volatile aspects of CPI and give a better sense of underlying inflation trends – fell to 5.2 per cent in August from 5.4 per cent in July.
On a monthly basis, the inflation rate fell by 0.3 per cent. That’s the biggest monthly cool-down since 2020. And so-called core inflation — which strips out volatile items like food and energy — fell to 5.2 per cent, down from 5.4 per cent the previous month.
“The relief in core inflation provides a powerful signal that the Bank of Canada’s rate hikes are having an impact,’ said Tu Nguyen, an economist with consultancy RSM Canada.
But even at seven per cent, the official inflation rate is still more than twice as high as the central bank likes to see. Which means consumers and borrowers should expect even more rate hikes to come.
“Grocery prices still rise rapidly and rapid wage growth means inflationary pressures remains [so] it is not yet time to breathe a total sigh of relief,” Nguyen said.
Indeed, the U.S. reported last week that its annual inflation rate ebbed to 8.3 per cent. However, core inflation – excluding food and energy – accelerated on a monthly basis, leading to a market selloff on fears that consumer price growth is proving sticky. The Federal Reserve will announce its next interest-rate decision on Wednesday. Analysts expect the Fed to hike its target for the federal funds rate by 75 basis points, to a range of 3 per cent to 3.25 per cent.
The Bank of Canada is likewise raising interest rates in aggressive fashion, aimed at tamping down inflation. The bank’s policy rate was recently hiked to 3.25 per cent. Despite a slower pace of inflation, analysts expect the central bank to hike again at its meeting in late October, given that consumer price growth is still far above the bank’s 2-per-cent target.
This article was first reported by CBC