By Overview
Canadian consumers experienced a surge in inflation last month, with prices rising at their fastest pace in four months. Statistics Canada reported that the consumer-price index (CPI) increased by 4.0% in August compared to the previous year. This exceeded market expectations and follows a 3.3% rise in July.
Factors Driving Inflation
The inflationary spike can primarily be attributed to higher gasoline prices and increased housing costs. As energy prices surged, the Bank of Canada had already anticipated a near-term acceleration in inflation. Furthermore, this mirrors a similar trend in the United States, where gas prices rose for the first time since January after a significant drop in July.
Month-on-Month Increase
CPI also rose on a month-on-month basis, registering a 0.4% increase in August. This surpasses the consensus forecast of a 0.2% rise. Adjusted for seasonal factors, inflation jumped 0.6% during this period.
Tougher Year-on-Year Comparisons
It is important to consider that year-on-year comparisons are becoming more challenging. Inflation had been steadily decreasing since reaching a peak of 8.1% last summer.
Implications for the Bank of Canada
This inflation report is the first of two that the Bank of Canada will analyze ahead of its next policy decision in late October. In September, the bank kept its benchmark interest rate at 5% following two consecutive quarter-point increases in June and July. Despite signs of slower economic growth, bank officials remain concerned about the persistence of underlying inflationary pressures.
Canadian Core Inflation Measures Show Increase in August
Statistics Canada has reported that two key measures of core inflation closely monitored by the Bank of Canada, the weighted median and trimmed mean, rose to an average of 4.0% in August, compared to 3.75% the previous month. These rates of core inflation have remained within the range of 3.5% to 4% for nearly a year, despite the central bank’s efforts to bring annual inflation back down to its target of 2%.
One of the contributing factors to the increase in inflation for August was the rise in gas prices across Canada. Higher crude oil costs, resulting from production cuts by major oil-producing countries, had a significant impact on the monthly increase in gas prices.
When excluding the impact of gasoline, the Consumer Price Index (CPI) showed a steady year-over-year increase of 4.1% in August compared to the previous month.
While grocery prices in Canada remain elevated, the pace of growth did slow down slightly on an annual basis. In July, the prices of items such as beef and coffee and tea experienced a significant surge, leading to an 8.5% increase. However, in August, the growth rate moderated to 6.9%. It is worth noting that prices for fresh fruit, cereal products, and chicken increased at a slower pace during this period.
By excluding the volatile food and energy components, Canada’s CPI rose by 3.6% in August compared to the same period last year. This marks a slight increase from the previous month’s gain of 3.4%.
In terms of shelter costs, rent experienced an increase in August, contributing to overall inflation. Additionally, consumers saw a slight rise in mortgage interest costs. However, prices for travel-related services decreased on a year-over-year basis.
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