September’s consumer price index for Canada put out any hope that inflation will get back under control anytime soon and only added pressure on the Bank of Canada to maintain its aggressive interest rate hikes.
Canada’s CPI rose by 6.9% on a year-over-year basis, slightly down from 7% in August, continuing a three-month streak of decline. But on a month over month basis, prices went up by 0.1%, according to a report from Statistics Canada on Wednesday.
Though the headline inflation number is down slightly from August, pricing are surging across all categories. Measures of core inflation, which exclude volatile items like food and energy, have stayed stubbornly high, signaling that while peak inflation might be behind us, it will take time and some real economic pain to restore price stability.
A pause in interest rate hikes is not likely in the coming months. In contrast, hotter-than-expected inflation numbers mean that the Bank of Canada might announce a 75-point hike next week instead of a more moderate 50-point increase as previously expected.
The Bank of Canada has so far remained consistent with the Federal Reserve’s aggressive approach, at times even outpacing the Fed’s rate increases as it did in July with the full percentage point hike.
The data
Excluding food and energy, prices increased by 5.4% in September, slightly up from 5.3% in August.
There has been relief at the pump, with gasoline prices declining by 7.4% from August and rising by 13.2% year over year. That yearly increase was the lowest such rise in gas prices since February 2021.
After the summer months, travel demand eased, and with fuel prices down, transportation prices fell by 1.9% from August, the third consecutive decline.
But households continue to struggle with ever-rising food prices, which went up by 10.3% from a year before.
Still, upward pressure on food prices is unlikely to dissipate. As colder weather approaches, more of Canada’s food will come from south of the border at a time of a weaker Canadian dollar, which will keep grocery prices up.
Shelter prices are a mixed bag. Amid a cooling housing market, prices of housing have declined, but higher mortgage rates are hitting homeowners.
The takeaway
Tasked with maintaining price stability, the Bank of Canada has little within its control besides setting interest rates. Geopolitical tensions, especially Russia’s invasion of Ukraine, supply chain disruptions and pandemic shutdowns, are all beyond the central bank’s control.
Add to that list the increasingly frequent occurrence of extreme weather events, which can further disrupt the supply chain. Those natural disasters hurt agricultural yields as well as infrastructure, and in the end they push prices higher.
This month’s inflation data is another reminder that the era of ultra-low interest rates and inflation consistently under 2% has most likely come to an end. Businesses and households need to prepare for a stormy period of high interest rates and high prices.
