Canada August CPI Hits 2% for First Time in 3 Years, Boosting Rate-Cut Expectations

Economic

Data Interpretation

Summary:

On September 17, local time, Statistics Canada reported that Canada's CPI rose 2.0% year-over-year in August, down from a 2.5% gain in July and marking the lowest level since February 2021. The monthly CPI dropped 0.2%, in line with expectations.

On September 17, local time, Statistics Canada released the CPI report for August:

August CPI rose 2.0% year-over-year, lower than July's 2.5%, and declined by 0.2% month-over-month, compared to a 0.4% gain in July.

Core CPI rose 1.5% year-over-year, also below July's 1.7%, and declined by 0.1% on a monthly basis, compared to a 0.3% increase in July.

The report showed that August CPI rose at the slowest pace since February 2021. The deceleration in headline inflation in August was due, in part, to a combination of lower prices for gasoline and a base-year effect. Mortgage interest cost and rent remained the largest contributors to the increase in the CPI in August.

Year over year, prices at the pump fell 5.1% in August following a 1.9% increase in July. The decline in August 2024 was mainly due to lower crude oil prices amid economic concerns in the United States and slowing demand in China. Despite slowing price growth, mortgage interest cost has remained the largest contributor to the all-items increase since December 2022. The mortgage interest cost index continued to rise at a slower pace year over year in August (+18.8%), for the 12th consecutive month.

Prices for clothing and footwear declined 0.6% on a month-over-month basis (declined 4.4% on an annual basis) in August. It was the 8 consecutive months that prices for clothing and footwear dropped, as retailers offered more and larger discounts in August 2024 to entice consumer spending amid recent slowing demand. At the national level, prices for electricity fell at a faster pace year over year in August (-1.7%) compared with July (-0.8%). The larger decline was due to a base-year effect in electricity prices in Alberta, following high summer demand in August 2023.

Inflation returns to 2%, boosting the market expectation of a faster rate cut by the Bank of Canada. After the data release, the market expects a 48% chance of a 50-bps rate cut in October.

Canada August CPI

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Canada August CPI Hits 2% for First Time in 3 Years, Boosting Rate-Cut Expectations

Canada August CPI

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