Commentaries /

March 2024 CPI: Two months down, one more to go

March 2024 CPI: Two months down, one more to go

Our Senior Economist Andrew DiCapua shares his key takeaways from today's Consumer Price Index (CPI) release.

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Business Data Lab

We’re almost there, with just one more step to go. We’ve reached another key milestone ahead of the Bank of Canada’s important meeting in June. Both the headline and core inflation measures are now within the Bank’s target range, with headline inflation stable for three months and core inflation trending downward. This was expected by markets, but was slightly weaker than the Bank’s projections from their April forecast. The ongoing price pressures are mainly due to rising gasoline prices in March and high shelter costs. Short-run core inflation is now below two percent. Despite a minor increase in the main inflation rate, there is increasing evidence that inflation is trending downward. Assuming no major surprises from the federal budget or economic data, this month adds more evidence for the Bank of Canada to consider its first rate cut at the June meeting.

Andrew DiCapua, Senior Economist, Canadian Chamber of Commerce

KEY TAKEAWAYS

Headline

  • Canada’s headline CPI inflation grew 2.9% in March (in line with consensus) on a year-over-year basis. Despite the uptick from 2.8% in February, March CPI is being held higher by gasoline, shelter, and services price pressures. CPI excluding energy grew 2.8%. On a monthly basis, the seasonally adjusted prices grew 0.3%. The silver lining is that headline and core inflation are within Bank of Canada’s target range of 1-3%.
  • The Bank of Canada’s core measures of underlying inflation grew 3% year-over-year, down from 3.1% in January, marking the third consecutive monthly deceleration in core measures. The short-run core measures (3-month change annualized) are running at a pace of 1.3%.

CPI Components

  • Shelter prices remain high in March, growing 6.5%, primarily driven by rent continuing its acceleration, growing 8.6% in March on a yearly basis.
  • Gasoline prices were up 4.5% on a yearly basis after softer growth in February. Despite higher prices due to geopolitical conflicts and voluntary production cuts from producers, elevated prices a year ago should help keep any upside surprises on gasoline inflation muted.
  • Goods inflation slowed in February, growing 1.1%, which has remained subdued for many months with durable and semi-durable goods showing negative annual growth. Services inflation is supporting higher inflation growth, reaccelerating to 4.5% in March, from 4.2% in February.
  • Food prices grew at their slowest pace since August 2021, rising 3% in March. Grocery prices decelerated to 1.9%. Restaurant food prices remain elevated, growing 5.1% in March, at a similar pace to last month.

Provincial and regional inflation

Prices accelerated in seven provinces, led by Quebec prices growing 3.6%.

SENTIMENT, OUTLOOK AND IMPLICATIONS

  • March CPI was below the inflation forecast in the Bank of Canada’s April Monetary Policy Report, which expected 3.03% year-over-year growth in March. The Bank remains concerned with the broad-based price pressures above 3%, and in particular stickiness on the services side of the economy.
  • Nonetheless, one more inflation report is left before the Bank’s consequential June meeting. Absent of any resurgence in economic activity or short-term stimulus measures in the Federal budget, the Bank should be in a good place to begin easing policy and lowering their policy rate in June.

SUMMARY TABLE

Sources: Statistics Canada; Bank of Canada; Canadian Chamber of Commerce Business Data Lab.

FISCAL CHARTS

Commentaries /

February 2024 CPI: The Bank of Canada will crack a smile with more good news on inflation

February 2024 CPI: The Bank of Canada will crack a smile with more good news on inflation

Canada’s headline CPI inflation grew 2.8% in February. What does it mean for the economy?

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Andrew DiCapua

It’s great to see headline inflation move further within the target range, and core inflation continuing its downward trend. We could see that the market was expecting a slightly higher inflation print, due to gasoline prices rising in February, but grocery store prices have slowed, and short-run core momentum measures are tracking around two percent. That’s going to be welcome news for households.

Governor Macklem will also take this as good news – and a signal that our current holding pattern is working. But we shouldn’t expect any moves from the Bank until June. With two more inflation updates, updated surveys on expectations, and a Federal budget, the Bank will want to see the data and build a case for any changes before they present anything to Canadians.

Andrew DiCapua, Senior Economist, Canadian Chamber of Commerce

KEY TAKEAWAYS

Headline

  • Canada’s headline CPI inflation grew 2.8% in February (below the consensus of 3.1%) on a year-over-year basis. Two months of slower price growth is surely welcome news to the Bank of Canada, despite stubborn shelter costs and volatile gasoline prices keeping headline inflation higher. CPI excluding food and energy grew 2.8%. Headline inflation moved closer within the Bank of Canada’s target range of 1-3%. On a monthly basis, the unadjusted CPI grew 0.3%.
  • The Bank of Canada’s core measures of underlying inflation grew 3.2% year-over-year, down from 3.4% in January. The 3-month change annualized is running at a pace of 2.2%.

CPI Components

  • Shelter prices remain high in February, growing 6.5% and continuing its reacceleration, primarily driven by rent once again growing (+8.2%).
  • Gasoline prices were up 0.8% on a yearly basis after a decline in January. Prices are on the upswing, with monthly prices growing 4% m/m.
  • Goods inflation slowed in February, growing 1.2%, which has remained subdued for many months. Services inflation is much higher and grew 4.2% in February, holding from the same growth rate in January.
  • Food prices made further progress in February, declining to 3.3% in February. Grocery prices decelerated to 2.4% growth, from 3.4% in January. This was the first time since October 2021 where grocery prices have undershot headline inflation. Restaurant food prices remain elevated, growing 5.1% in February, at a similar pace to last month.
  • Odds and ends: Clothing and footwear was down 4.2% and household operations declined 1.7%, driven primarily by lower cell phone plan prices (-26.5%).

Provincial and regional inflation

Prices decelerated in seven provinces, which continues January broad-based price easing. Though more volatile prices are expected in Alberta with energy prices.

SENTIMENT, OUTLOOK AND IMPLICATIONS

  • February CPI was below the inflation forecast in the Bank of Canada’s January Monetary Policy Report, which expected 3.3% year-over-year growth in February, and averaging 3% yearly growth till June. The Bank remains concerned with the broad-based price pressures above 3%, and in particular stickiness on the services side of the economy.
  • Despite the positive surprise in February’s print, there is no rush to move, and the Bank will want to communicate their updated position at their April meeting. This tees up June for a cut, where we’ll have two more inflation reports to evaluate.
  • The Bank will pay attention to two key April releases. New Business Outlook Survey and Canadian Survey on Consumer Expectations data on April 1 will show updated business and household inflation expectations. The Federal budget, which is expected on April 16, will be important to evaluate any new program spending that could impede progress on returning to target.

SUMMARY TABLE

Sources: Statistics Canada; Bank of Canada; Canadian Chamber of Commerce Business Data Lab.

CHARTS

Commentaries /

CPI January 2024: Some good news on inflation, but too early to celebrate.

CPI January 2024: Some good news on inflation, but too early to celebrate.

Canada’s headline CPI inflation grew 2.9% in January (below the consensus of 3.3%) on a year-over-year basis.

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Andrew DiCapua

Inflation is now in the target range, which is good news for the Bank of Canada. But the Bank is also acutely aware of the stickiness of core measures and the impact elevated shelter prices. That’s why they will likely keep their policy stable until price pressures abate enough to account for those large contributions that shelter prices are having – and will continue to have – moving forward. All this is making the return to target more difficult. But should the economy and labour market remain buoyant, timing is surely in the Bank’s favour.

Andrew DiCapua, Senior Economist, Canadian Chamber of Commerce

KEY TAKEAWAYS

Headline

  • Canada’s headline CPI inflation grew 2.9% in January (below the consensus of 3.3%) on a year-over-year basis. The first inflation print of the year is welcome news and aided by lower gasoline prices last year. Headline inflation is now within the Bank of Canada’s target range of 1-3% for the first time since last June. On a monthly basis, the unadjusted CPI was unchanged.
  • The Bank of Canada’s core measures of underlying inflation grew 3.4% year-over-year, down from 3.7% in December. The 3-month change annualized for core measures is running at a pace of 3.2%.

CPI Components

  • Shelter prices remain high with prices in January increasing 6.2%, primarily driven by rent once again growing (+7.9%).
  • Gasoline prices were down 4% on a yearly basis, which helped bring down the energy component of CPI to -2.7% in January.
  • Goods inflation continues to slow, growing 1.3% in January, coming from a stronger 2.4% growth in December. Services inflation is much higher and grew 4.2% in January, down slightly from 4.3% in December.
  • Food prices made further progress, declining to 3.9% in January. Grocery prices decelerated to 3.4% growth, from 4.6% in December. Restaurant food prices remain elevated, growing 5.1% in January, down from 5.6% in December.

Provincial and Regional Inflation

  • Prices decelerated in all parts of the country, except for Alberta, which saw inflation accelerate from 3% to 3.4%.

SENTIMENT, OUTLOOK AND IMPLICATIONS

Bank of Canada

  • January CPI data was roughly in line with the Bank of Canada’s Monetary Policy Report, published at their January decision meeting. The Bank was forecasting 3% year-over-year growth in January, reaching 3.3% by March 2024.
  • Considering the Bank’s forecast for inflation was in line with January’s print, we don’t expect a rate move at their March meeting. February inflation won’t be available before the Bank’s March meeting, and they’ll need to see three solid months of progress to feel confident with the trend. We continue to expect the Bank to consider a rate cut in the spring, at the earliest.

SUMMARY TABLES

Sources: Statistics Canada; Bank of Canada; Canadian Chamber of Commerce Business Data Lab.

CHARTS

Commentaries /

CPI December 2023: Hovering above target, the new year will bring the same challenges in the battle against inflation

CPI December 2023: Hovering above target, the new year will bring the same challenges in the battle against inflation

Our Senior Economist Andrew DiCapua analyzes the key takeaways of the Consumer Price Index (CPI) report for December 2023.

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Andrew DiCapua

If we’ve learned anything over the past few months, it’s that the last mile of the race against inflation is the hardest and the longest. December marked the second consecutive month where inflation moved in the wrong direction, with essential components like food and shelter still above 5%.

In the Bank of Canada’s fourth quarter consumer and business surveys, one-year inflation expectations remain too high with consumers still believing inflation will be more than double target. Despite progress, unanchored inflation expectations will take time to adjust, keeping the Bank in a tough position in the start of 2024. Long story short – even if the hard data show progress, the Bank will have to battle the perception of inflation at risk of tilting the economy into recession.

Andrew DiCapua, Senior Economist, Canadian Chamber of Commerce

KEY TAKEAWAYS

Headline

  • Canada’s headline CPI inflation grew 3.4% in December (in line with the consensus of 3.4%) on a year-over-year basis. Despite being partly attributed to base effects due to lower gasoline prices last year, inflation remains above target. On a monthly basis, the unadjusted CPI declined 0.3%.
  • The Bank of Canada’s core measures of underlying inflation accelerated 0.4% month-over-month, with an average of two core indicators growing at 3.7% year-over-year, up from 3.6% in November.
  • Annual CPI for 2023 grew 3.9%, down from the peak 6.8% in 2022.

CPI Components

  • Transportation costs led the increase in inflation, shifting from negative growth to 3.2% year-over-year, led by a 31% jump in air transportation prices.
  • Gasoline prices were higher again on a yearly basis, growing by 1.4%.  Following a 7.7% decline in prices in November, base effects reversed this month. Excluding food and energy, prices rose 3.4%.
  • Following three months of slower goods inflation, December rose to 2.4%. Services inflation declined to 4.3% growth, down from 4.6% in November. Passenger vehicles rose 2.3% as new 2024 models come onto the market.
  • As the housing market continues to moderate, shelter prices remain high with prices in December holding steady at 6% for the fifth consecutive month, primarily driven by the rent price index (+7.7%), and further indicating affordability pressures.
  • Overall food prices remained steady around 5% growth. Grocery prices declined slightly to 4.6% growth, from 4.7% in November. That said, restaurant food prices continue to grow (+5.6%) and are an ongoing challenge for households.

Provincial and regional inflation

  • Prices increased in all parts of the country, except for Manitoba, which saw inflation marginally decelerate.

SENTIMENT, OUTLOOK AND IMPLICATIONS

Bank of Canada

  • The Bank of Canada’s closely-watched three-month moving average of core inflation measures accelerated from 2.9% to 3.6%.
  • Markets fully expect the Bank of Canada to hold rates on January 24. With the release of their Monetary Policy Report at the next announcement, more insight on how they see the Canadian economy evolving will provide their perspective into how they see inflation evolving in 2024. All told, we do not interest rate cuts to start in the first quarter of 2024.

Inflation expectations

  • December’s CPI data, along with the Bank of Canada’s Q4 Business Outlook Survey and Canadian Survey on Consumer Expectations suggestthat inflation expectations are moving in the right direction, but remain too high for the Bank’s comfort. The disconnect between prices expected between businesses and consumers continues, with the latter still expecting one-year ahead inflation to remain near 5%. This will need to markedly come down for the Bank to consider their mission accomplished.

SUMMARY TABLES

CHARTS

Commentaries /

November 2023 CPI: Too early to declare victory over inflation as we remain above the target band

November 2023 CPI: Too early to declare victory over inflation as we remain above the target band

Headline inflation in Canada was unchanged in November, staying at 3.1%, which was higher than the market was expecting (2.9%) and still remains slightly above the top of the Bank of Canada’s inflation control target band.

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Marwa Abdou

Headline inflation in Canada was unchanged in November, staying at 3.1%, which was higher than the market was expecting (2.9%) and still remains slightly above the top of the Bank of Canada’s inflation control target band.

While this was not the Christmas present that the market or the BoC was expecting, if you dig beneath the headline annual numbers, there has been some underlying progress on core inflation in recent months; the three-month moving average of the Bank’s preferred core measures fell from 2.9% to 2.5% in November, as food price inflation thankfully continues to decelerate.

That said, rising rents and elevated wage pressure remain problematic. Given the more optimistic outlook south of the border, we expect the U.S. Federal Reserve to start the easing cycle in 2024 while the Bank of Canada, and most other central banks, sit back, hold the line and nervously wait for more durable progress on the inflation front.

Marwa Abdou, Senior Research Director, Canadian Chamber of Commerce

KEY TAKEAWAYS

Headline

  • Headline inflation held steady and above market consensus at 3.1% on a year-over-year (y-o-y) basis. Matching last month’s increase, November’s read was up 0.1% month-over-month (m-o-m) which continued to keep us outside the Bank of Canada’s target range (1-3%).
  • We remain above June’s 27-month low of 2.8% when the effects of lower energy prices from a year prior when Russia invaded Ukraine had peaked.
  • Unfortunately, excluding food and energy, prices rose 3.5% in November, compared with a 3.4% rise in October.
  • While headline inflation remained stuck and the BoC’s core measures didn’t improve on a year-over-year basis, there was one silver lining. There was some progress as the BoC’s closely watched 3-month average of their preferred core measures fell from 2.9% to 2.5%, as food prices decelerated.

CPI Components

  • Grocery prices, which had been consistently running hot for most of 2023, continued their fifth consecutive month of y-o-y deceleration.
  • Food prices increased in November (+4.7%) but at a slower pace compared with October (+5.4%) with broad-based slowdowns across components including non-alcoholic beverages (-0.6%), fresh vegetables (+2.5%) and other food preparations (+6.4%) making the biggest dents.
  • Energy prices fell to a larger extent below year-ago levels in (-5.7%) because of lowered fuel oil prices. The temporary suspension of federal carbon levy on fuel oil contributed to the decline. Prices fell a whopping 23.6% at the national level in November (following October’s downtick of 12.6%).
  • Y-o-y services’ prices remained elevated in November and unchanged from October (+4.6%).
  • Canadians are also continuing to feel relentless heat from higher prices for mortgage interest costs (+29.8%) and rent (+7.4%), which were the largest contributors to last month’s y-o-y increase.
  • Prices pressures also came by way of prices for travel tours which accelerated +26.1% y-o-y compared with October (+11.3%). This was due to “events held in destination cities in the United States during November” as cited by the report.

Provincial Inflation and Regional Notes

  • On an annual basis, prices rose at a slower pace in November than October in six provinces – all Atlantic provinces (Newfoundland & Labrador, PEI, Nova Scotia, and New Brunswick), Manitoba and Quebec.

SENTIMENT, OUTLOOK & IMPLICATIONS

Bank of Canada

  • As the BoC held its interest rates steady this month at 5% for the fourth consecutive month, this latest report only solidifies that this will unlikely change anytime soon.
  • Now more than a year and a half after beginning its aggressive campaign to cool the economy, and with former Governor Tiff Macklem remarks last week, it is “still too soon for the institution to consider rate cuts”.

SUMMARY TABLES

Table 1: Canadian Inflation – CPI Components and BoC Core Measures

Table 2: Provincial Inflation

CPI CHARTS

Commentaries /

October 2023 CPI: Some encouraging news on inflation for the Bank of Canada

October 2023 CPI: Some encouraging news on inflation for the Bank of Canada

Today's Fall Economic Statement is likely to focus heavily on affordability, because that's what everyone is talking about. Which is why the slowdown in headline — and more importantly — core inflation, will be welcome news for the Bank of Canada.

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Stephen Tapp

Today’s Fall Economic Statement is likely to focus heavily on affordability, because that’s what everyone is talking about. Which is why the slowdown in headline — and more importantly — core inflation, will be welcome news for the Bank of Canada. This ensures that the Bank will hold rates at its next meeting on December 6. But the devil is in the details —  main consumer affordability pain points remain high, such as food and shelter costs. We’ll need to see much more progress on those fronts, along with an improved outlook for the overall economy, before the sentiment among Canada consumers improves.

Stephen Tapp, Chief Economist, Business Data Lab, Canadian Chamber of Commerce

KEY TAKEAWAYS

Overall

  • Headline inflation decelerated to 3.1% year-over-year in October —down noticeably from 3.8% in September, and largely due to lower gasoline prices. This outcome was expected by financial mark.
  • On a seasonally-adjusted basis, the CPI actually edged down by 0.1% — the first outright decline since May 2020.
  • Importantly and encouragingly, both the Bank of Canada’s core inflation measures continued to slow, averaging 3.6% year-over-year, down from 3.8% a month earlier. Moreover, these shorter-term measures (the closely-watched three-month moving average) finally hit the top of the Bank’s target range at 3.0% (down from 3.7%).

CPI Components

  • Lower gas prices were the main contributor to lower headline inflation in October; they were down 8% year-over-year. Excluding gas, prices rose 3.6%.
  • That said, the biggest problem areas driving consumers’ affordability concerns remain:
    • Shelter prices, which rose further to 6.1% from 6.0%, primarily reflecting accelerating rent prices (8.2%), and the largest increase in property taxes in 31 years; and
    • Food inflation, which slowed to 5.6% from 5.9%.
  • Goods inflation fell to 1.6% (from 3.6%, again largely from lower gas prices), while services inflation picked up to 4.6% (from 3.9%, driven by higher prices for rents, property taxes and travel).

Provincial Inflation

  • Inflation slowed in all provinces in October. It is now highest in Quebec (4.2%) and lowest in PEI (1.7%).

Implications for the Bank of Canada

  • Markets fully expect the Bank of Canada to hold rates on December 6, and are now looking for interest rate cuts, beginning as early as March 2024.

SUMMARY TABLES


Sources: Statistics Canada; Bank of Canada; Canadian Chamber of Commerce Business Data Lab

CPI CHARTS

Commentaries /

September 2023 Consumer Price Index : A welcome step in the right direction.  But businesses are not out of the woods.

September 2023 Consumer Price Index : A welcome step in the right direction.  But businesses are not out of the woods.

We're moving in the right direction. September inflation came down slightly, which could mean that the Bank of Canada will hold at their next meeting.

Author's image
Andrew DiCapua

We’re moving in the right direction. September inflation came down slightly, which could mean that the Bank of Canada will hold at their next meeting. If they do, it will likely be because the Bank wants to wait for the moderation of more volatile components, like gasoline prices run off – a prudent move. Market expectations have quickly reversed calls for another rate hike, but businesses are still feeling the pinch of inflation, with elevated inflation expectations remaining a complicating factor.

Andrew DiCapua, Senior Economist, Canadian Chamber of Commerce

KEY TAKEAWAYS

Headline

  • Today’s release of September CPI was slightly lower than expected. Canada’s headline CPI inflation grew 3.8% in September (compared to consensus of 4%) on a year-over-year basis. Today’s headline CPI is a small relief following two months of reacceleration. On a monthly basis, CPI declined 0.1%.
  • The Bank of Canada’s core measures of underlying inflation slowed this month, with an average of two core indicators growing at 3.8% year-over-year, down from 4% in July. That said, the three-month moving average of core measures remains high at 3.7%.

CPI Components

  • Gas prices were higher again on a yearly basis, growing by 7.5%. After a nearly 1% increase in prices in August, base effects continued into this month. Excluding food and energy, prices rose 3.2%. Gas prices in October indicate that prices are expected to decline relative to last year.
  • Following higher durable goods inflation in August, it’s welcome news for goods inflation to decline in September to 3.6%. Services inflation also declined to 3.9% growth, down from 4.3%. Lower durable goods (+0.4%) were driven by cheaper passenger vehicles and lower airfare (-21%).
  • As the housing market moderates, shelter prices remain high with prices in September holding steady at 6%, primarily driven by rent price index, and further indicating pressure on supply.
  • September’s data brought another month of lower grocery prices with 5.8% growth, from 6.9% in July. That said, food prices continue to grow above headline inflation and will be a continued challenge for affordability.

Provincial and regional inflation

  • Year over year, prices increased in all provinces in September but rose at a slower pace compared with August in six provinces.

SENTIMENT, OUTLOOK AND IMPLICATIONS

Bank of Canada

  • The Bank of Canada’s core measures edged lower on the month. The moderation in overall inflationary pressures, driven by food, durable goods, and services, will be welcome news for the Bank.
  • arkets are now pricing in that the Bank of Canada will hold rates on October 25. However, with the release of their Monetary Policy Report at the next meeting, they could justify one last hike if they see inflation entrenched in their updated forecast.

Inflation expectations

  • September’s CPI data combined with the recent release of the Bank of Canada’s Q3 Business Outlook Survey suggests CPI is moving on the right direction. That said, there seems to be a disconnect between prices expected between businesses and consumers, with the latter expecting one-year ahead inflation to remain near 5%. This will need to markedly come down for the Bank to consider their mission accomplished.

SUMMARY TABLES

Sources: Statistics Canada; Bank of Canada; Canadian Chamber of Commerce Business Data Lab.

CPI CHARTS

Commentaries /

August 2023 CPI: Keep calm and carry on? But, we’re moving in the wrong direction.

August 2023 CPI: Keep calm and carry on? But, we’re moving in the wrong direction.

Inflation in August will raise concern at the Bank of Canada and among many Canadians. With a 4% annual growth, surpassing market expectations of 3.8%, the summer months have provided a humbling reminder of the sensitivity of headline prices to volatile commodities like food and energy, with gasoline prices being the primary driver of this month's inflation.

Author's image
Rewa

Inflation in August will raise concern at the Bank of Canada and among many Canadians. With a 4% annual growth, surpassing market expectations of 3.8%, the summer months have provided a humbling reminder of the sensitivity of headline prices to volatile commodities like food and energy, with gasoline prices being the primary driver of this month’s inflation. Many Canadian consumer and business surveys now show declining inflation expectations. The Bank of Canada, with one more month of data before its next policy meeting, faces mounting market expectations for another rate hike. We’ll likely see more upside surprises in the upcoming months.

Andrew DiCapua, Senior Economist, Canadian Chamber of Commerce

KEY TAKEAWAYS

Headline

    • Today’s release of August CPI was higher than expected. Canada’s headline CPI inflation grew 4% in August (compared to consensus of 3.8%) on a year-over-year basis. This comes after 3.3% growth in July, marking two months of headline CPI increases. Now that base-effects have settled in, headline inflation will swing within a range on a monthly basis.
    • The Bank of Canada’s core measures of underlying inflation are also heading in the wrong direction, with an average of two core indicators (CPI-median and CPI-trim), growing at 4.0% year-over-year, and 0.4% on a monthly basis.

    CPI Component

    • Gasoline prices rose on a yearly basis for the first time since January 2023, by 0.8%. After a nearly 13% decline in prices in July, a reversal in direction in August drove inflation growth as base effects shift. Excluding food and energy, prices rose 3.6%. Gas prices for the first two weeks in September indicate that prices are expected to stay elevated relative to last year, largely due to reduced global supply, as opposed to strong demand.
    • Goods inflation rebounded in August, growing at 3.7%. Services inflation remains high and grew on an annual basis of 4.3%. This has been consistently high for months and will need to decline further in order to tame wage growth pressures.
    • Despite some earlier cooling in the housing market this year, shelter prices were up 6%, primarily driven by rent price index, and further indicating pressure on supply.
    • One modest bright spot in the data was a decline in grocery prices to 6.9% growth, from 8.5% in July. That said, food prices continue to grow above headline inflation and will be a continued challenge for affordability.

    Provincial and regional inflation

    • On an annual basis, all provinces experienced upward price pressure in August, but Nova Scotia saw the highest growth at 4.7%. Price growth for gasoline accelerated the most in Alberta, growing by 13%.

    SENTIMENT, OUTLOOK AND IMPLICATIONS

    Bank of Canada

    • The Bank of Canada’s core measures moved in the wrong direction, now hovering at almost double the Bank’s target of 2%. This will put added pressure on the Bank to raise rates at their next policy meeting on October 25. With another month of inflation data to consider, and the release of their Monetary Policy Report at the next meeting, we will have a better picture on the future path of rates.
    • Ultimately, the Bank needs to consider their “higher for longer” policy, and whether another hike will put the Canadian economy in jeopardy.

    Inflation expectations

    • Despite inflation moving higher over the past two months, various consumer and business surveys reinforce that both input and output price growth is set to slow.

    SUMMARY TABLES

    Table 1:  Canadian Inflation – CPI Components and BoC Core Measures

    Sources: Statistics Canada; Bank of Canada; Canadian Chamber of Commerce Business Data Lab.

    Table 2: Provincial Inflation

    Sources: Canadian Chamber of Commerce; Statistics Canada

    CPI CHARTS

    Commentaries /

    July 2023 CPI: Inflation got hotter in July, but it was mostly expected.

    July 2023 CPI: Inflation got hotter in July, but it was mostly expected.

    After a cooling streak, higher than expected Canada’s headline CPI inflation had an uptick in July to 3.3% (as compared to the anticipated 3.0%) on a year-over-year basis.

    Author's image
    Marwa Abdou

    As frustrating as today’s headline inflation figure of 3.3% may be – given it was up from 2.8% in June and higher than market expectations – the change of trajectory from recent months was not entirely surprising. So much of the downward momentum and cooling that we’ve seen over the past few months has been overstated progress from soaring gas prices a year ago. While those effects have now peaked – and heftier grocery bills, mortgage interest rate costs and energy prices remaining a pain point for Canadian consumers – we’re now getting a chance to focus on the real work that remains ahead.

    Does this signal another policy hike is in store for Canadians next month? With sluggish progress on the Bank of Canada’s core measures, it’s not entirely out of the question. We might need to see how June’s GDP data fares come on September 1. This will signal whether further tightening is necessary.

    Marwa Abdou, Senior Research Director, Canadian Chamber of Commerce

    KEY TAKEAWAYS

    HEADLINE

    • After a cooling streak, higher than expected Canada’s headline CPI inflation had an uptick in July to 3.3% (as compared to the anticipated 3.0%) on a year-over-year basis.
    • After a recent steady cooling streak, Canada’s annual inflation rate dropped to a 27-month low of 2.8% in June led by lower energy prices from a year prior when Russia invaded Ukraine. As those effects have peaked, the real work has been making headway on the Bank of Canada’s core measures.
    • Overall, there hasn’t been significant progress on core measures.  While headline inflation accelerated, the average of two of the Bank of Canada’s core measures of underlying inflation, CPI-median and CPI-trim, came in at 3.7% (unchanged from June) and 3.6% (compared to 3.7%)

    CPI COMPONENTS

    • Excluding food and energy, prices rose 4.1% compared with a 4.0% rise in June.
    • Though gas prices were still below year-ago levels in July (-12.9%), the decline was smaller than in June (-21.6%). This is also a result of base-year effects and prices remaining nearly unchanged on a month-over-month basis in July.
    • One bright spot in the data has been the cooling of prices for travel-related services as compared to last year when COVID restrictions had lifted, and demand peaked post-pandemic. Traveler accommodation prices continued to slow (4.2% vs. 12.9% in June). Prices for travel tours also slowed (1.2% vs. 6.8%). In addition, airfares were down 12.7% compared with last July, after falling by 3.5% in June.
    • One major pain point for Canadian consumers has been grocery prices which had been consistently running hot. While prices remain elevated, another ray of light is that we’re seeing a slower pace of growth (8.5% vs 9.1% in June) by way of fresh fruit and, to a lesser extent, baked goods.

    PROVINCIAL INFLATION & REGIONAL NOTES

    • On an annual basis, except for Saskatchewan and British Columbia, prices rose at a faster pace in July than in June. Price growth accelerated the most in Prince Edward Island, largely due to acceleration in prices for energy products.
    • Another noteworthy highlight is that electricity prices rose significantly in Alberta (+127.8%!) in July.

    SENTIMENT, OUTLOOK & IMPLICATIONS

    BANK OF CANADA

    • While there is glacial progress on the Bank of Canada’s core measures, and we’ve been surprised in the past, my sense is come September we might be still safe from another increase in policy rates. It will also have to factor in the strength of the Canadian economic backdrop – as we await June’s GDP data on September 1.
    • We’ve seen signs that the economy is slowing, including the 3-month averages falling slightly. We also know that lagged effects of previous policy rate hikes will take time to continue working their way through the economy.

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    Commentaries /

    June 2023 CPI: Base effects have peaked, but no real change in core measures

    June 2023 CPI: Base effects have peaked, but no real change in core measures

    As the first data release since last week’s interest rate announcement, June’s headline inflation reading marks the first time since March 2021 that annual inflation is back within the Bank of Canada’s 1% – 3% control range.

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    Rewa

    As the first data release following last week’s interest rate announcement, June’s headline inflation reading brings annual inflation back within the Bank of Canada’s control range of 1% to 3% for the first time since March 2021. Still, while the annual changes have slowed, it’s still too early to celebrate since most of the progress is from energy price base-effects from a year ago. Unfortunately, the stickiest and hardest part of the inflation fight is only just beginning.

    Marwa Abdou, Senior Research Director, Canadian Chamber of Commerce

    KEY TAKEAWAYS

    Headline

    • Exceeding market expectations, Canada’s headline CPI inflation slowed in June to 2.8% on a year-over-year basis, below the anticipated 3.0%. The deceleration is primarily driven by base effects from a year ago, particularly in energy prices following the geopolitical situation between Russia and Ukraine. When excluding food and energy, prices rose by 3.5% compared to 4.0% in May.
    • While the headline puts us within the Bank of Canada’s inflation control target range overall, it doesn’t show much meaningful progress on core measures. Although it continues a positive trend with the lowest inflation rate in over two years, excluding gasoline from the calculations pushes inflation up to 4.0%, well above the upper end of the target range.
    • Mortgage interest costs and travel expenses continue to place a major dent on consumers’ wallets as the month-over-month CPI rose by 0.1% (compared to +0.4% in May).

    CPI Components

    • Despite a slowdown in energy price growth, gasoline prices continue to drive down inflation with a 21.6% decline in June (following a drop of 18.3% in May). This reflects the base-year effects when global crude oil demand surged as China eased pandemic-related restrictions.
    • Transportation prices also fell by 3.4% in June (following a 2.4% decline in May). Much like energy, we saw base-year effects play out for passenger vehicle prices from a year prior where the sector had suffered from persistent supply chain and inventory challenges. Price increases slowed to +2.4% (compared to +3.2% in May).
    • If you are travelling, domestically or internationally, you are also likely to feel the weight of elevated prices. But the good news is that along with travel was also another area where we saw a deceleration in price increases as compared to the previous month (+6.8% vs.+23.4%). Still, this is not shocking as it falls in line with seasonal patterns that peak in July.
    • Grocery prices are still running hot (+9.1% yr/yr in June as compared to +9.0% May). Meat (+6.9%), baked goods (+12.9%), and dairy products (+7.4%) accounted for most of the rise.

    Provincial inflation

    • A bright spot in the monthly report is that inflation slowed in 8 out of 10 provinces. Atlantic provinces continue to lead the way, with Prince Edward Island clocking in the lowest inflation of all (+0.2%). This too reflects those base effects as it had the largest decline in energy prices (-24.1%).

    SENTIMENT, OUTLOOK & IMPLICATIONS

    Bank of Canada

    • With last week’s BoC announcement to increase rates to a 22-year high of 5.0%, all eyes are on its two “core inflation” measures. Their average, while continuing to show very modest softening year-over-year, remains well above the target range — 3.8% vs. 3.9% in May. Unfortunately, shorter-term (3-month) core measures increased in June (also matching the 3.8%). Taken together, this indicates stalled progress on underlying inflation pressures, which is a major concern for the Bank.
    • The central bank, which cited excess demand, expects inflation to remain around 3% over the next year before dropping to its 2% target by mid-2025, six months later than previously anticipated. Unfortunately, we may have to get used to tight monetary policy, as the lagged effects of previous actions work their way through the economy.

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