By Robb M. Stewart
OTTAWA–Inflation in Canada unexpectedly cooled last month as the cost of groceries continued to climb less steeply and consumers saw some relief on prices for items such as airfares.
The deceleration is likely to be welcomed by central bank policymakers ahead of next week’s decision on interest rates, though inflation continues to run well above target and is tracking ahead of its most recent forecast.
The consumer-price index, a closely watched inflation gauge, rose 3.8% from a year earlier, Statistics Canada said Tuesday. The market was expecting the index to advance 4.0%, the same pace as the month before when it accelerated for a second month in a row.
Compared with August, CPI fell 0.1% for the month, weaker than the consensus expectation for the index to be unchanged. On a seasonally-adjusted basis, inflation advanced 0.2% on-month in September.
The inflation report is one of the last major indicators Canada’s central bank will have to consider before the Oct. 25 policy meeting. Bank of Canada officials have expressed concerns about the persistence of underlying inflationary pressures, but have sought to balance the risk monetary policy isn’t yet restrictive enough against possible overtightening before past rate increases have time to slow demand.
Two measures of core inflation the Bank of Canada closely monitors, weighted median and trimmed mean, cooled in September to an average 3.75% from 4.0% the month before, Statistics Canada said. Still, three-month rates of core inflation have been stuck between 3.5% to 4% for about a year, despite the bank’s efforts to drive annual inflation back down to its 2% target.
The central bank, which is set to update its projections next week, has forecast inflation would remain at roughly 3% for about a year after the more rapid deceleration from an 8.1% peak in the summer of 2022. Comparisons with a year ago are growing tougher, given inflation had been cooling steadily up until recently.
The latest report showed prices for groceries remain elevated, rising above the headline rate of inflation, though the pace has been slowing in recent months to hit 5.8% on-year in September from a 6.9% increase the month before.
Prices for durable goods also decelerated last month, thanks in large part to a smaller rise in prices for new passenger vehicles with improved inventory levels compared with last year.
Canadians paid less for airfares, coinciding with the increased number of flights being offered by airlines over the last year. However, prices growth accelerated in September for non-durable goods, and gasoline prices rose at a faster pace. Excluding gasoline, the CPI advanced 3.7% after an increase of 4.1% in August.
The Bank of Canada last month held its policy rate at a 22-year high of 5% following back-to-back quarter-point increases in June and July.
The latest jobs data indicates wage gains are outpacing inflation and accelerated on a monthly basis in September for permanent employees, even as the economy has shown signs of cooling in recent months. Potentially making it tougher for the central bank to tame inflation, expectations remain elevated near-term, with recent central bank surveys pointing to an expectation by businesses that inflation will take longer than three years to return to target.
Write to Robb M. Stewart at [email protected]
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