Canada’s inflation rate cools with the smallest gain of 2% in August, hitting Bank of Canada’s target
Canada’s annual inflation rate reached the central bank’s target in August at it cooled to 2 per cent, its lowest level since February 2021, data showed on Tuesday.
The closely watched core price measures also cooled to their lowest level 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) to 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 $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 continued their relentless rise.
At the Bank of Canada’s monetary policy decision announcement earlier this month Governor Tiff Macklem said the 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 from June, cutting by a cumulative 75 basis point to 4.25 per cent.
Money markets are fully pricing in 25 basis point rate cuts twice in as many monetary policy meetings remaining in the year. 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.
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 clothing and footwear fell by 4.4 per cent.
Shelter costs, which accounts for close to 30 per cent of the CPI basket, rose by 5.2 per cent in August, from 5.7 per cent in July, primarily led by rents which rose by 8.9 per cent from 8.5 per cent in July.
(Additional reporting by David Ljunggren in Ottawa; Editing by Dale Smith, William Maclean)
This article was first reported by Reuters
