2023-09-19 18:28:37
Annual inflation rose to 4.0% last month in Canada, and economists warn the new Consumer Price Index report is bad news for the Bank of Canada.
The most recent data from Statistics Canada on inflation show that prices have climbed on an annual basis compared to the month of July, for which they increased by 3.3%. This is the second consecutive month of increase in inflation.
Forecasters widely expected higher inflation last month, driven by rising gasoline prices. But Tuesday’s report was even more discouraging than expected.
“What is most concerning is that (inflation) has accelerated more than (expected) and we have also seen some basic measures of inflation tracked by the Bank of Canada accelerate as well “, underlined Andrew Grantham, general manager of economic studies at CIBC.
Fundamental measures of inflation eliminate price volatility and play an important role in how the Bank of Canada assesses inflationary pressures.
With this latest uptick in price growth, Grantham noted that third-quarter inflation is now on track to be higher than the Bank of Canada forecast in July.
The central bank is due to make its next interest rate decision on October 25 – a decision that economists including Mr Grantham say now looks more difficult to make.
Earlier this month, the Bank of Canada decided to maintain its key interest rate at 5.0% due to the slowing economy.
Recent data showed the economy contracted in the second quarter, while the unemployment rate trended upward.
Statistics Canada also released Tuesday its latest report on vacancieswhich shows that these continue to decrease.
Now the central bank will have to weigh this data, as well as the inflation figures, and decide what matters most to it.
“Our view at the moment is that they are going to focus on weakening the economy,” Grantham said, while noting that the next rate decision will be “a close decision”.
Other Bay Street economists shared similar views Tuesday.
“We expect further signs of slowdown to help the Bank stand still, as our recent forecasts indicate. However, today’s inflation report has increased the likelihood that it will have to make another (rise),” said economist Leslie Preston, managing director at TD Bank, in a note to clients. .
The Bank of Canada will have a chance to respond to new inflation data as Deputy Governor Sharon Kozicki is scheduled to deliver a speech Tuesday followingnoon at the University of Regina.
Less pressure on food
The report published Tuesday morning nevertheless included rather positive elements. For example, food prices rose more slowly, climbing 6.9% from last year, compared to an 8.5% increase last month.
In addition, food prices decreased by 0.4% between July and August.
“I think food inflation will continue to slow,” Mr. Grantham said.
“(But) if you’re an average Canadian, an average household, you don’t want prices to stop increasing, you want them to come down a little bit from these very high levels. I’m not sure that’s going to happen anytime soon, unfortunately. »
Rising grocery prices are a major problem for Canadian families, particularly those with low incomes who spend a greater portion of their income on food.
Industry Minister François-Philippe Champagne met with senior executives of Canada’s major grocery chains on Monday to discuss measures to stabilize prices.
After the meeting, Mr. Champagne said grocers had agreed to work with the federal government, but few details had been provided on how prices might be stabilized.
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