Canada’s inflation rate increased at its slowest pace in over three years, but what does that mean for everyday Canadians?
The Consumer Price Index (CPI) rose 2.0 per cent year-over-year in August, which is down from 2.5 per cent in July.
According to Statistics Canada, the slowing of inflation last month was due, in part, to lower gas prices, along with mortgage interest costs and rent, which remained the largest contributors to the increase in the CPI in August.
Moreover, the 2.0 per cent inflation rate is in keeping with the Bank of Canada’s (BoC) target, though Candians will have to wait until the central bank’s next announcement in October to find out if slower inflation will lead to further key interest rate cuts, which multiple major banks say is likely.
Following the release of the numbers, James Orlando, director and senior economist at TD Bank wrote, “headline inflation is back at the BoC’s 2.0 per cent target,” and that “core measures keep grinding lower,” meaning costs related to goods such as gasoline and mortgages are reducing.
But, “these figures would be even lower if it weren’t for the outsized impact of high housing costs.” Orlando continued.
He went on to describe inflation rates, excluding shelter, as growing at a “paltry” pace year-over-year which he said exemplifies how high interest rates have weighed on the Canadian economy and slowed the pace of growth, in turn highlighting a need for further BoC cuts.
RBC provided a similar analysis, saying that interest rates are still at levels high enough to restrict economic growth in the country.
Nonetheless, there is some good news.
MORTGAGE INTEREST RATE COSTS SLOW DOWN
Though house prices remain high, Canadians can expect to spend less in other areas, including on their mortgage payments.
The mortgage interest cost index rose at a slower pace in August year-over-year (+18.8 per cent) after peaking in August 2023 at 30.9 per cent.
GASOLINE PRICES FALL
Good news for car owners: gas is getting cheaper.
Year over year, prices at the pump fell 5.1 per cent in August, which Statistics Canada attributes to a combination of a base-year effect and current events.
“The decline in August was mainly due to lower crude oil prices amid economic concerns in the United States and slowing demand in China,” the government agency said.
COST OF CLOTHES AND SHOES TAKES A RECORD-BREAKING TUMBLE
Prices for clothing and footwear declined 0.6 per cent on a month-over-month basis in August, according to Statistics Canada, which also said a drop in prices in August has not been observed since 1971 as the month is typically associated with back-to-school demand forcing higher prices.
However, compared with Aug. 2023, retailers offered more and larger discounts to encourage spending amid slowing demand, the government agency says.
Year over year, clothing and footwear prices fell for an eighth consecutive month, down 4.4 per cent in August following a 2.7 per cent decline in July, it concluded.
INFLATION RATES STILL HIGHLIGHT NEED FOR FURTHER INTEREST RATE CUTS
Despite a slower rate of inflation, Orlando says more interest rate cuts are needed for a healthier economy.
“We calculate that the current policy rate is still nearly 200 basis points above where it should be based on the current state of the economy, and that is after 75 bps in cuts over the last few months,” he wrote.
Once again, RBC was aligned with Orlando’s analysis saying it expects to see the BoC make further interest rate cuts over the coming months.
“The path to further BoC interest rate cuts is clear. We continue to expect a gradual rate cutting path [of] 25 basis points per meeting,” the bank concluded.
