Canada’s inflation rate eases to 7% in August as gas prices fall but food costs continue to climb

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Canada’s annual inflation rate fell for the second consecutive month in August as gasoline and other products declined, offering some hope that the Bank of Canada’s campaign to curb price hikes through very tight lending terms would have its intended effect. Happening.

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Consumer Price Index (CPI) up 7 percent in August from a year ago, Statistics Canada said on tuesday, This was lower than financial analysts’ estimate of 7.3 per cent. Inflation was at 7.6 per cent in July and 8.1 per cent in June, the highest in nearly four decades.

On a monthly basis, the CPI fell 0.3 per cent in August, which was again weaker than analysts’ expectations. Gasoline prices were a major driver of lower inflation, falling 9.6 percent in July to August. But it was not only the pump where consumers got some relief.

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Inflation slowed to 7% in August. Here’s What It Means for the Cost of Living in Canada

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The cost of shelter has declined for the first time since January 2021, leading to a marginal drop in rents. The prices of clothes and shoes have also come down. The average of the Bank of Canada’s core measures of annual inflation — which isolates the volatile aspects of the CPI and gives a better understanding of underlying inflation trends — fell to 5.2 percent in August, from 5.4 percent in July.

However, there were some discouraging signs. Grocery prices rose 10.8 percent year-on-year, the fastest pace in more than 40 years.

“Is it too good to be true? We have seen a head-fake in the numbers earlier with recent data for US inflation,” Royce Mendes, head of macro strategy at Desjardins Securities, wrote to clients. Decreasing supply chain pressures, declining commodity prices and an overly interest rate sensitive economy are all conspiring to see price hikes calm in Canada before other jurisdictions.”

In fact, the US reported last week that its annual inflation rate had come down to 8.3 percent. However, core inflation – excluding food and energy – accelerated on a monthly basis, leading to a sell-off in the market on fears that consumer price growth was proving sticky. The Federal Reserve will announce its next interest rate decision on Wednesday. Analysts expect the Fed to raise its target for the federal funds rate by 75 basis points to 3 percent to 3.25 percent.

The Bank of Canada is also aggressively raising interest rates with the aim of reducing inflation. The policy rate of the bank was recently increased to 3.25 per cent. Despite slowing inflation, analysts expect the central bank to hike again at its meeting in late October, noting that consumer price growth is still well above the bank’s 2 percent target.

“Inflation likely hasn’t slowed enough, or long enough, to convince the Bank of Canada that further hikes in interest rates are not necessary,” Andrew Grantham, senior economist at CIBC Capital Markets, said in an investor note.

“However, today’s inflation readings, as well as other data highlighting a slowing Canadian economy, support the view that the Federal Reserve will need to do what in the US to bring inflation back to the 2% target, Here interest rates should be down.”

The annual inflation rate is likely to get another help from petrol in September. As of Monday, the national average for regular unleaded gas was 155.4 cents a liter, 9.5 per cent lower than the August daily average, according to data from Calibrate Technologies.

Grocery prices have not improved. On a 12-month basis, meat increased by 6.5 percent, bakery products by 15.4 percent, fresh fruit by 13.2 percent and pasta products by 20.7 percent. “Food supplies continued to be affected by a number of factors, including extreme weather, high input costs, Russia’s invasion of Ukraine, and supply chain disruptions,” Statscan said in a Tuesday report.

Price growth is slowing for durable goods, which were a major sector of consumer demand during the pandemic, as people directed their spending away from services. Home appliances grew 9 per cent year-on-year from 11.5 per cent in July. Statscan said price increases for refrigerators, washing machines, dishwashers and cooking appliances were also cool, citing “decline in consumer demand.”


Source: www.theglobeandmail.com

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