Current Inflation Rate in Canada: 4%
Statistics Canada recently released the latest inflation figures for August, revealing an annual rate of four percent, up from 3.3 percent in July.
Higher Inflation Than Expected
The anticipation among forecasters was that inflation would rise in the last month due to increased gasoline prices. However, Tuesday’s report was more disheartening than expected.
Andrew Grantham, CIBC’s Executive Director of Economics, expressed concern, stating, “What is most concerning is that inflation accelerated more than expected, and we also saw some core measures of inflation that the Bank of Canada tracks accelerate as well.”
Understanding Core Measures of Inflation
Core measures of inflation eliminate price volatility and play a crucial role in the Bank of Canada’s assessment of inflationary pressures.
With the recent uptick in price growth, Grantham suggests that inflation during the third quarter is likely to exceed the Bank of Canada’s July forecast.
Bank of Canada’s Response
In response to the latest inflation numbers, Bank of Canada Deputy Governor Sharon Kozicki commented on the expected swings in inflation rates. Kozicki noted that one significant contributor to this month’s inflation was energy and gasoline costs, a factor that can exhibit substantial volatility.
Kozicki emphasized that the central bank is more concerned with core measures of inflation, which haven’t shown significant progress recently.
The Bank of Canada’s Upcoming Interest Rate Decision
The Bank of Canada is scheduled to make its next interest rate decision on October 25, a decision that economists now consider more challenging.
Grantham remarked, “This is a very difficult decision.”
Earlier this month, the Bank of Canada chose to maintain its key interest rate at five percent as the economy experiences a slowdown. Second-quarter data revealed economic contraction, and the unemployment rate has been on the rise.
On the same day, Statistics Canada released its job vacancies report, indicating that vacancies continue to decline.
Now, the central bank faces the task of balancing this data with the higher inflation figures and determining which holds greater weight.
Grantham suggests that the bank is likely to prioritize the economic weakening, though he acknowledges that the next rate decision will be a “close call.”
Other economists on Bay Street shared similar sentiments. Leslie Preston, Managing Director and Senior Economist at TD, said, “We expect further signs of slowing will help the Bank to continue to stand on the sidelines, as outlined in our recent forecast. However, today’s inflation report has raised the odds they may need to make another move.”
The Bank of Canada will have additional data to consider before its next rate decision, including an inflation reading for September. However, Grantham believes that this figure is unlikely to differ significantly from August, given the recent increase in oil prices.
Impact on Grocery Prices
A small silver lining in Tuesday’s report is that grocery prices are rising at a slower rate, with a 6.9 percent increase from a year ago compared to 8.5 percent last month. Grocery prices even fell by 0.4 percent between July and August.
Grantham anticipates that the inflation rate for groceries will continue to decelerate, but he acknowledges that prices may not decrease significantly in the near future.
High grocery prices have been a major concern for Canadian families, especially those with lower incomes who allocate a larger portion of their earnings to food.
Government Measures to Address Grocery Prices
Industry Minister François-Philippe Champagne met with top executives of Canada’s major grocery chains to discuss measures aimed at stabilizing prices. Following the meeting, Champagne stated that grocers agreed to collaborate with the federal government, although few details were provided regarding the stabilization measures.