Canada’s annual inflation rate rose to 1.9 per cent in August, Statistics Canada said on Tuesday, the final piece of economic data to be released before the Bank of Canada’s next interest rate decision.
The higher rate was largely expected. Gas prices, which dropped at a rate of more than 16 per cent in July, were still declining in August — but at a slower pace than they had previously, contributing to the upward tick in the overall inflation rate.
Pump prices have been on a downward trend since the removal of the consumer carbon price in April. With gas stripped away from the overall inflation rate — resulting in a metric called core inflation — the numbers mostly ticked down in August.
Economists were already anticipating that the central bank would cut rates by 25 basis points during its Wednesday meeting, marking the bank’s first cut since March. Tuesday’s inflation numbers mostly amplified that sentiment.
A ‘low-drama affair’
The pace of price growth “won’t cause the Bank of Canada much stress, thus keeping them on track for a rate cut at tomorrow’s decision,” wrote wrote Douglas Porter, chief economist at BMO, in a note to clients.
Porter called the report a “low-drama affair,” adding that milder core inflation paired with weakening employment sets the table for further rate cuts down the line.
“However, we suspect the Bank will continue to take it one step at a time,” he added.
Andrew Grantham, a senior economist at CIBC Capital Markets, said the “unthreatening” inflation numbers make the Bank of Canada’s interest rate announcement tomorrow a “relatively easy decision.”
“With core measures of inflation likely to cool further in the months ahead thanks to the slack building up in the economy and the removal of many retaliatory tariffs on September 1st, we not only expect a 25 [basis point] cut tomorrow but also a further reduction at the October meeting,” Grantham wrote.
Grocery inflation rises 3.5 per cent
Groceries rose 3.5 per cent in August compared to the same period last year, according to Statistics Canada data. The price of meat rose 7.2 per cent, with pricier fresh and frozen beef and processed meat contributing to higher inflation.
Fresh fruit prices were down 1.1 per cent year over year, mostly driven by price declines for grapes and berries, the data agency said.
The cost of cellular services fell at a slower pace in August compared to a year earlier, but was up on a monthly basis as companies raised prices for back-to-school cellphone plans. That was offset somewhat by lower prices for smartphones and tablets.
And prices for travel services fell last month by 3.8 per cent, partly due to lower demand for travel to the U.S. However, hotel prices rose, particularly in Nova Scotia and Newfoundland and Labrador. The latter province hosted the Canada Games during the last half of the month.
