Canada’s Consumer Price Index fell to 1.6%, the smallest increase since February 2021, mainly thanks to lower gasoline prices.
On a monthly basis, CPI fell 0.4% in September after falling 0.2% in August, according to data released by Statistics Canada on Tuesday; both declines were due to lower gasoline prices. Gasoline prices fell 7.1% in September compared to August. On a year-over-year basis, gasoline prices fell 10.7%.
On a seasonally adjusted monthly basis, CPI was unchanged at 0.0%.
Inflation falling below the 2% target increases the odds of a 50-basis-point rate cut from the Bank of Canada next week.
It’s clear that the Bank of Canada is well behind the curve when it comes to rate cuts, given the disinflation and lack of growth in the economy. While the bank has favoured the gradual path thus far, the data might convince them to speed up as the main concern has shifted from price stability to jobs and growth.
While the CPI drop is driven by lower gasoline prices, inflation excluding gasoline was 2.2%, well within the 1-2% preferred range and very close to 2%.
Measures of core inflation stayed steady from August’s numbers but are decidedly lower than a few months ago or a year prior.
It’s important to understand that although the rate of price increases has moderated, price levels are permanently higher and not going back down. Therefore, households whose income has not caught up with inflation over the past few years will still feel the pinch of higher prices.
For more insights on the Canadian economy, check out The Real Economy, Canada.
Compared to three years ago – September 2021, CPI rose 12.7%, with rents up 21% and groceries up 20.7% during the same period.
Looking ahead, disinflation is expected to continue, especially as rate cuts further relieve mortgage interest payments. We see inflation hovering at or below 2% in the upcoming months.
The data
Shelter inflation rose 5.1%, still way above headline inflation but slowly coming down as recent rate cuts led to smaller increases in mortgage interest payments for mortgage renewals.
Excluding mortgage interest payments, inflation fell to 1.0%, firmly in disinflationary territory.
Groceries prices went up 2.4%, above the headline number, and restaurant food prices went up 3.5%. Food prices have been a pain point for Canadian households in the post-pandemic economy.
Air transportation fell 4.4% in September on a year-over-year basis, and fell 14.3% from August, which is a typical seasonal change as summer travels ended.
