Canadian CPI growth back at BoC’s 2% inflation target in August

  • The slowing in year-over-year price growth to a 2.0% rate – the lowest since February 2021, and right in line with the BoC’s 2% inflation target – was largely driven by lower gasoline (and oil) prices but broader underlying inflation pressures also showed further signs of easing.
  • The BoC’s preferred median and trim measures both posted ‘normal’ looking 0.2% month-over-month increases that pushed the closely-watched 3-month average annualized growth rate for the pair down to 2.4% from 2.8% on average in July.
  • Trim services ex-shelter prices (sometimes called BoC supercore) rose 0.2% month-over-month by our count, with the 3-month average annualized growth rate slowing to 2.5% in August from 3.0% in July.
  • Shelter costs are still one of the remaining pockets where prices are rising rapidly. Home rent prices were up 8.9% from a year ago in August. Mortgage interest cost growth has started to slow but are still 18.8% above year-ago levels in August. Those two price components accounted for ~two-thirds of the total year-over-year CPI increase in August by our count. higher shelter costs (among the most non-discretionary of non-discretionary purchases) will continue to cut into household purchasing power for other products.
  • By our count, 46% of the CPI basket was growing at an above 3% rate over the last 3-months (month-over-month annualized rates), down from 49% in July.
  • Food price growth held steady at a 2.7% year-over-year rate (unchanged from July) an energy prices fell 4.7% from a year ago on lower gasoline (and oil) prices.

    • Bottom line: Broader inflation pressures look to be back around the 2% inflation target, and interest rates are still at levels high enough to restrict economic growth and push price growth lower. Per-capita GDP already down in 7 of the last 8 quarters and the unemployment rate up more than a percent from a year ago. Against that backdrop, the path to further BoC interest rate cuts is clear. We continue to expect a gradual rate cutting path (25 basis points per meeting) down to a 3% overnight rate with risks tilted to potentially larger cuts if the economy softens significantly further.

Lower oil and gasoline prices pushed headline inflation down, from 2.5% year-over-year in July to 2.0%.

The Bank of Canada’s preferred core measures ticked lower, with rates slightly above the 2% target on annualized three-month rolling average basis.

The share of CPI basket with high inflation rate (>3%) continued to decrease.

Mortgage interest costs are expected to slow further as rate cuts take effect, but rent CPI is not coming down yet.

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  • Headline inflation kept easing in Canada in July to 2.5% year-over-year that was the lowest reading since March 2021.
  • The yearly readings for both food (2.7%) and energy inflation (0.4%) were little changed. Gasoline prices were slightly higher than both last month and July a year ago. That in turn means the moderation in headline CPI came from everything else – core ex-food and energy CPI dropped to 2.7% year-over-year in July from 2.9%.
  • In July, shelter inflation slowed to 5.7% year-over-year following persistent easing in CPI for mortgage interest costs (MIC) since fall of 2023. MIC inflation in July was still high, up over 20% from a year ago. Excluding that, headline inflation in Canada has been trending around the 2% target since January this year.
  • Rent inflation is another spot that pressures are easing but slowly – rent CPI in July was still elevated at 8.5% above last year. Meanwhile sluggish resale market performance is keeping a lid on inflation for owned home expenses, which remained negative on a yearly basis.
  • Bank of Canada’s preferred “core” CPI measures – CPI trim and median both grew at a slower pace in July, more in line with very small increases in the spring after having accelerated in May and June. On a month-over-month seasonally adjusted basis, the two measures averaged 0.1% above June.
  • The “supercore” CPI measure, i.e., BoC’s trim services ex-shelter index grew at a similarly slow pace, up 0.1% from June to leave the three-month annualized reading at 3%, down from 3.3% in June.
  • Among other components, a smaller than expected seasonal upswing in airfare and travel tours in July left prices for both dipping below levels a year ago. Improved auto inventory as supply chain knots continue to untie also led a persistent slowing in auto inflation. Prices for new cars were about 1% above last year and prices for used cars dropped to 6% below.

    • Bottom line: Today’s CPI print should be enough to quell concerns about sticky inflation pressures in Canada after two marginal upside surprises in May and June. Readings were unequivocally weak – with slowing evident among all core CPI measures. The scope of price pressures also continued to normalize – the diffusion index says the breadth of inflation in Canada is looking similar to pre-pandemic norm in 2019. That’s good news for the Bank of Canada, who is actively turning their focus onto a weakening economic backdrop and the disinflationary pressures that could stem from that moving forward. The hurdle for more BoC cuts this year is low and we continue to look for another 25 basis point cut at their next meeting in September.

  • Headline inflation edged lower to 2.5% year-over-year, down from 2.7% in the prior month
  • Mortgage interest costs still accounted for a large share of the price growth
  • Growth in the BoC’s preferred ‘core’ measures continued to slow and the breadth of inflation pressures has narrowed
  • Businesses are expecting a slowdown in wage and price hikes.

  • After an upside surprise in May, inflation trends in Canada largely resumed lower in June with headline CPI dropping to 2.7% from 2.9%.
  • The decline in headline inflation mostly reflected easing in energy CPI growth (to 0.5% year-over-year in June) following a 3% drop in gasoline prices month-over-month from May. That was enough to offset a rise in food inflation to 2.8% from 2.4% in May.
  • June was the second month that growth in food prices accelerated. On a monthly seasonally adjusted basis, food prices rose at a 0.6% average rate in each of May and June, much faster than the -0.03% pace between January and April this year.
  • Excluding food and energy, core CPI held unchanged at 2.9% year-over-year from May. Other “core” CPI measures that the Bank of Canada pays close attention to, including CPI trim and CPI median both rose at a slower 0.2% (seasonally adjusted) in June. That leaves the yearly reading for CPI trim unchanged at 2.9%, and for CPI median slightly lower at 2.6%.
  • The “supercore” CPI measure, i.e. BoC’s trim services ex-shelter index again rose by a larger 0.3% in June on a seasonally adjusted basis, matching the reading in May. That pushed the three-month annualized reading of the same measure higher to 3.4% in June from 3%.
  • Nonetheless, from the BoC’s perspective the broader picture remains that inflation pressures are easing in Canada – the closely watched 3-month rolling average increases in the preferred core measures rose but that was following a string of earlier downside surprises so the 6-month rolling average continued to ease.
  • On the goods side, persistent unwinding in global supply chain challenges and diminishing demand over the past years continue to feed through to lower goods inflation in Canada. In June, prices for durable goods were 1.8% below a year ago, driven by price drops in used cars (-4.5%) as auto inventory improves, and in furniture (-3.9%).

    • Bottom line: June’s CPI print was a small relief after an upside surprise in May, with headline inflation matching consensus expectation prior to the release. Bank of Canada’s preferred CPI trim and CPI median both dropped lower on a monthly basis although the narrower “supercore” measure held slightly higher. Yesterday’s second quarter release of the BoC’s Business Outlook Survey largely confirmed further normalizing in a few key areas that the central bank has deemed critical to future inflation trends, including firms’ pricing behaviour, their expectations for inflation in the future as well as wage growth. All told, we expect the BoC will carry on with easing the monetary brakes on a weak economy, and follow up with another rate cut at its July meeting next week.

  • Headline inflation slowed in June due to slower energy price growth
  • The 3-month average of the Bank of Canada’s preferred core measures saw an uptick, but the 6-month average held right around the 2% inflation target
  • Most Canadian wage measures are showing slower growth – consistent with softening labour markets
  • The latest BOS survey indicated firms and consumers have lowered their inflation expectations for the next year in Q2/24.
  • Canadian businesses’ believe that their input/selling price growth will continue to slow, suggesting lower inflation in the year ahead.

  • Year-over-year headline inflation edged higher in May but energy price growth slowed and food inflation was little changed
  • BoC’s key inflation measures ticked slightly higher on three-month rolling average basis, but still close the 2% target
  • The breadth of price pressures has narrowed to pre-pandemic level in Canada
  • A lower six-month rolling standard deviation of ‘supercore’ prices indicated a more stable and predictable inflation environment
  • Inflation for renters is increasing faster than inflation for homeowners

  • Headline inflation slowed again in April despite higher energy costs, price growth for groceries also slowed.
  • Bank of Canada’s closely monitored core measures all dropped lower on a year-over-year basis and were much lower than the peak levels in mid-2022.
  • The scope of inflationary pressures continues to narrow in Canada, comparing to the U.S. where pressures are again spreading in early 2024.
  • Unit labour costs are high but expected to trend lower in the future, as wage growth slows.

  • March’s headline inflation print inched up on higher energy costs.
  • The breadth of inflation pressures narrowed again with the share of the CPI basket growing above 5% going down to 22.3% in March, from 26.0% in the prior month.
  • The Bank of Canada’s favored inflation measures, CPI-median, trim, CPIX, and ‘supercore’ all edged lower with annualized 3-month growth in the ‘trim,’ ‘median’, and CPIX measures all below the BoC’s 2% inflation target in March.
  • Latest Business Outlook Survey showed firms’ expected wage growth was unchanged (4.1%) from the last quarter, but it’s still much lower than the peak level (5.84%) in Q1/22.
  • Businesses’ expected input and output price increases are back to pre-pandemic average levels.

  • Year-over-year CPI ticked lower on lower food prices and a larger-than-expected cooling in price growth excluding food and energy products.
  • The breadth of inflationary pressure continued to narrow, with the share of CPI basket growing at more than 3% edging lower to 47.8%.
  • Growth in the BoC’s closely watched core measures slowed sharply and CPIX was unchanged over the last three months in February.
  • Most of the price growth was still driven by shelter inflation, but mortgage interest costs have been trending lower.
  • Canadian businesses on average continue to plan for smaller price increases in the year ahead.

  • Year-over-year CPI growth slowed to 3.2% in January from 3.4% in December.
  • Energy and food price growth slowed, but the Bank of Canada’s preferred core measures of broader price pressure also unexpectedly slowed.
  • Mortgage interest cost growth is slowing but still driving a disproportionate share of CPI growth. Home rent growth is still accelerating.
  • But other components of shelter inflation, such as homeowners’ replacement costs, saw improvements on lower house prices.
  • Wage growth still elevated along with a strong start to the year for labour markets.

  • Energy component pushed headline inflation reading higher with food price growth holding steady after slowing for 5 straight months.
  • The BoC’s preferred core CPI measures bounced higher, although the breadth of inflationary pressures over the last three months continued to narrow.
  • Travel tour prices declined sharply in December, reversed the jump the prior month.
  • The latest Business Outlook Survey revealed more firms perceived normal/less price increases due to weaker demand
  • And on the consumer side, Canadians’ expectations on rent price growth remained elevated

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