Inflation eased, but the Bank of Canada did not rise in its fight: Economists

Nujoud Al-Males, The Canadian Press

Published Tuesday, September 20, 2022, 7:34 PM EST

Ottawa – Inflation in Canada Cooling faster than expected, but economists don’t expect a bank Canada To undo her fight so far.

The annual inflation rate slowed to 7.0 percent in August, statistics Canada It said Tuesday in its latest monthly report on the Consumer Price Index (CPI).

Prior to the report’s release, RBC had forecast August inflation to be 7.2 percent.

The slowdown was largely driven by a drop in the price of gasoline, however, Canadians still feeling sluggish at the grocery store. Food prices rose at the fastest rate since 1981 in August, with prices up 10.8 percent from a year ago.

Excluding gasoline prices, the annual inflation rate was 6.3 percent, making August the first month since June 2021 that annual inflation, excluding gasoline, slowed.

“This is a good inflation report, hopefully,” Benjamin Ritzes, managing director of Canadian Rates and macro strategist at BMO, said in an email to clients.

Bank Canada He will pay close attention to his preferred measures of core inflation, which tend to be less volatile and help the bank see temporary changes in the CPI. All of these measures point to a slowdown in annual inflation in August as well.

Randall Bartlett, chief Canadian economist at Desjardins, said while the latest numbers are good news, Bank of Canada It will likely continue down the path of higher interest rates.

We do not believe that this report indicates that Bank of Canada Almost done so far. “But it’s definitely good news, and it indicates that inflation is heading in the right direction.”

In a speech on Tuesday afternoon at the University of Waterloo, Bank of Canada Deputy Governor Paul Bodry addressed concerns raised by some that the central bank would need to engineer a major economic slowdown, or even a recession, to bring down inflation.

Pewdry Bank said Canada People believe that their inflation expectations are based partly on past inflation and partly on central bank communications. The deputy governor said the bank tends to communicate effectively with the public about monetary policy to help alleviate some of the growing concerns about persistent inflation.

“The bank is committed to keeping its communications during this challenging period clear, simple and focused on our inflation mandate,” he said, adding that the more effective the bank is in its communications, the more likely it is to avoid a recession.

Bank Canada The laser is focused on lowering inflation expectations, which have been high in recent polls. If people’s expectations start to fall, Bartlett said, it could affect the bank’s future decisions on interest rate and the general tone on inflation.

Earlier this month, Bank Canada It raised its key interest rate for the fifth time this year. With a rise of three-quarters of a percentage point, the bank’s key interest rate now remains at 3.25 percent.

The bank is due to announce its next interest rate on October 26, and has warned that more rate hikes are needed to bring inflation back to its 2 percent target.

TD Bank expects Canada To raise interest rates again in October and raise the key rate to four per cent by the end of the year.

The latest inflation report also showed that the gap between inflation and wages is narrowing, with average hourly wages rising 5.4 percent in August compared to 7.0 percent for inflation.

Despite the slowdown in general inflation, the cost of living remains stubbornly high for Canadians.

On a monthly basis, overall consumer prices were slightly lower in August than they were in July.

statistics Canada He said the 0.3 percent drop in CPI from July to August was the biggest monthly drop since the pandemic’s early months.

With grocery prices soaring in August, bakery goods were up 15.4 percent while fresh fruit prices were 13.2 percent higher than they were a year ago.

statistics Canada He attributes the acceleration in food prices to continued supply chain disruptions, the Russian invasion of Ukraine, severe weather, and rising input costs.

Regarding the slowdown in headline inflation, the federal agency said transportation and shelter prices led to a slowdown in consumer prices.

Gas prices rose 22.1 percent in August from a year ago, but have fallen by 17.9 percent since June.

Shelter costs fell slightly from July to August, but remained 6.6 percent higher than they were a year ago.

This report was first published by The Canadian Press on September 20, 2022.