The Consumer Price Index (CPI) rose 6.9 per cent in September on a year-over-year basis, decelerating from a 7.0 per cent gain in August, marking the third consecutive monthly slowdown in headline inflation, according to a report released Wednesday by Statistics Canada.
But prices for food purchased from stores (+11.4 per cent) grew at the fastest pace year-over-year since August 1981.
Lower gasoline prices were mostly responsible for the deceleration in the overall inflation rate, said the federal agency.
“While prices at the gas pump dropped in September compared with August, Canadians continued to feel the pinch from higher food prices. Excluding food and energy, prices rose 5.4 per cent year over year in September, following a gain of 5.3 per cent in August. Prices for durable goods, such as furniture and passenger vehicles, grew at a faster pace in September compared with August.
In September, the Mortgage Interest Cost Index continued to put upward pressure on the all-items CPI, as Canadians renewed or initiated mortgages at higher interest rates. On a monthly basis, the CPI rose 0.1 per cent in September.
“Average hourly wages rose 5.2 per cent on a year-over-year basis in September, meaning that, on average, prices rose faster than wages. The gap in September was larger compared with August.”
The federal agency said that on a monthly basis, gasoline prices dropped 7.4 per cent in September following a 9.6 per cent decrease in August. This is the third consecutive month-over-month price decline for gasoline. Year over year, gasoline prices rose 13.2 per cent in September, down from 22.1 per cent in August.
“In September, prices for food purchased from stores (+11.4 per cent) grew at the fastest pace year-over-year since August 1981 (+11.9 per cent). Prices for food purchased from stores have been increasing at a faster rate than the all-items CPI for 10 consecutive months, since December 2021,” said StatsCan.
“Contributing to price increases for food and beverages were unfavourable weather, higher prices for important inputs such as fertilizer and natural gas, as well as geopolitical instability stemming from Russia’s invasion of Ukraine.
“Food price growth remained broad-based in September. On a year-over-year basis, Canadians paid more for meat (+7.6 [er cent), dairy products (+9.7 per cent), bakery products (+14.8 per cent), and fresh vegetables (+11.8 per cent), among other food items.”
There will be some long faces at the Bank of Canada this morning as inflation cooled less than in expected, said Karyne Charbonneau, an economist with CIBC Economics.
“This is the third consecutive deceleration in headline CPI driven mainly by the fall in gasoline prices. Given that those prices have since reversed, the next month could see headline inflation temporarily heading in the wrong direction again. Meanwhile, food prices continued to rise at a historic pace. But that is not the main focus for the Bank of Canada, who is paying closer attention to core inflation. CPI excluding food and energy rose by 0.4 per cent seasonally adjusted on the month, faster than last month and a pace too high to be consistent with the two per cent target, but still an improvement from earlier in the summer. CPI-trim and CPI-median were unchanged at 5.2 per cent and 4.7 per cent respectively (remember that the Bank of Canada has stopped looking at CPI-common). The Bank of Canada has clearly not slayed the inflation dragon yet, and is therefore set for another large increase in interest rates of at least 50 bps next week,” said Charbonneau.
Leslie Preston, Managing Director & Senior Economist with TD Economics, said it’s great that headline inflation took a small step in the right direction in September, but underlying inflation pressures in core measures showed no signs of cooling down.
“The BoC has hiked interest rates 300 basis points so far this year, and the impact of that is starting to be felt in the economy, from housing to consumer spending. But, with the Bank of Canada’s (BoC) core measures of inflation more than two percentage points from the target range of one to three per cent, more cooling in demand is required. Today’s report emphasizes the need for a hefty 50 basis point hike next week in the BoC’s overnight rate. We expect the bank is getting closer to a pause on rate hikes, once it reaches four per cent by the end of the year,” said Preston.
“Bluntly, inflation did not ease as much as anticipated last month, even as gasoline costs took a big step back,” said Doug Porter, Chief Economist with BMO Economics. “Underlying inflation remains extremely persistent and sticky at above five per dent. Combined with the BOC’s recent tough rhetoric, the recent weakness in the Canadian dollar, and the strong likelihood that the Fed hikes by 75 bps at the next FOMC, we are now expecting a like-sized 75 bp hike next week from the Bank. This would take the overnight rate to four per cent, and we suspect that will not be the end of it—pencilling in a 25 bp move in December.”
(Mario Toneguzzi is a veteran of the media industry for more than 40 years and named in 2021 a Top Ten Business Journalist in the world and only Canadian)
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