Food, gas, rent and other factors influencing Canada's August inflation rate

11:00 a.m.

Should Canadians brace for pain at the pump again?

Canadian motorists may be in for another round of pain at the pump. While gasoline has remained relatively expensive for the past several months, it’s not where consumers have felt the impact of inflation most acutely. Unfortunately, that may be about to change.

Gasoline prices, which fell quickly after soaring past $2 a litre in the spring of 2022 following Russia’s invasion of Ukraine, were once again a driver of overall inflation in August. Gasoline prices were up 4.6 per cent in August compared to July, reflecting mainly higher oil prices as key global producers cut back supply. That upward climb may continue for several more months.

Saudi Arabia and Russia said earlier this month they would extend coordinated oil production cuts until the end of 2023. The move has been pushing up oil prices, with the price for Brent crude – the international oil price benchmark – now hovering around US$95 a barrel. Some energy analysts expect Brent prices will rise past US$100 this year.

Unfortunately, today’s inflation numbers offer few signs of financial relief for consumers elsewhere. Both rent and mortgage interest costs registered bigger year-over-year increases in August compared to the already sizable yearly increases recorded in July. Meanwhile, grocery prices dipped just 0.4 per cent between July and August. Compared to a year ago, the price of food bought in stores was still up 6.9 per cent.

To top off the bad news, measures of core inflation, which strip out the most volatile components of the Consumer Price Index and which the Bank of Canada watches closely as a gauge of inflation trends, also accelerated upward in August. While other indicators show the economy is cooling off, “current inflationary pressures remain stronger than previously anticipated,” CIBC economist Andrew Grantham wrote in a note to clients. That complicates the central bank’s decision about what to do at its next interest rate decision on Oct. 25.

– Erica Alini

10:40 a.m.

Bond yields surge after inflation data

Bond prices were hammered and yields rose sharply on Tuesday morning as traders were sideswiped by the inflation data and scrambled to increase their bets on more Bank of Canada rate increases. The yield on two-year Government of Canada bonds jumped 9 basis points to 4.87 per cent, topping recent highs reached in July. (A basis point is 1/100th of a percentage point; bond prices and yields move in opposite directions.)

The Canadian dollar (CADUSD) strengthened against the U.S. dollar, rising around 0.6 per cent to 74.6 cents around 10:30 a.m. ET.

Meanwhile, traders in interest rate swap contracts upped their bets on another Bank of Canada interest rate hike. Swap markets, which capture market expectations about future monetary policy decisions, are now pricing in a roughly 40 per cent chance of another rate hike in October, according to Refinitiv data. Before the August inflation data, markets were putting the odds of another rate hike at about one-in-five.

– Mark Rendell

10:37 a.m.

Economist reaction

Douglas Porter, chief economist Bank of Montreal: “Things just got a lot more interesting for the Bank of Canada, and most definitely not in a good way. We all knew that the extended back-up in gasoline prices was going to be a headache for headline CPI and inflation expectations, but the inconvenient truth is that core has suddenly heated up as well. We will note that even excluding mortgage interest costs, prices are now up 3.2 per cent y/y, or above the target band. There’s still lots of data to go before the bank next decides on rates (October 25), including another swing at the CPI. Unfortunately, we suspect that with oil firing higher and core inflamed again, that report will be no better than today’s – second verse, same as the first, a little bit louder and likely a little bit worse.”

Leslie Preston, senior economist, Toronto Dominion Bank: “Headline inflation moving back up to 4 per cent on higher energy prices would likely be tolerated by the Bank of Canada. But, core inflation measures heating back up to 4 per cent y/y, and 4.5 per cent on a three month annualized basis is going to ring some alarm bells at the bank. August’s inflation reading stands in contrast to other measures that have shown momentum cooling in Canada’s economy. The housing market, and new home construction cooled in August, and the unemployment rate has risen half a percentage point over the past few months. Fortunately, the Bank of Canada will see another inflation report before its next rate decision on October 25th. 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.”

Royce Mendes, head of macro strategy, Desjardins: “The average of the three-month annualized rates of the Bank of Canada’s core trim and median measures now stands at 4.5 per cent, up significantly from the 3.5 per cent seen in July. Moreover, 50 per cent of the CPI basket is still rising at a pace faster than 5 per cent per year. Those statistics won’t sit well with the Bank of Canada. In response, Government of Canada bond yields are up sharply across the curve. That said, the central bank is unlikely to change course based on one reading. There continue to be signs that the economy is stagnating even though the lagged impacts of monetary policy have yet to make their way through the system. As a result, expect policymakers to remain hesitant about raising rates any further this cycle even if they continue to talk tough.”

Stephen Brown, deputy chief North America economist, Capital Economics: “The rise in headline and core inflation back toward 4 per cent means we can no longer blame mortgage interest costs for keeping inflation elevated, as that component is currently adding little more than 1 per cent point to the headline rate. We estimate that headline inflation will average 3.7 per cent this quarter, well above the bank’s July forecast of 3.3 per cent. While that means the bank will maintain a hiking bias in its forthcoming communications and the risk of another rate hike is higher than we previously judged, we still think signs of broader economic weakness will persuade the bank to remain on hold at its next meeting in October – providing that the September CPI report, due before that meeting, does not show another unwelcome surprise.”

– Mark Rendell

10:20 a.m.

David Parkinson: The Bank of Canada is not going to like this inflation report

It’s not impossible to find good things in Statistics Canada’s August Consumer Price Index report, but you have to look pretty hard. It’s not just that the overall year-over-year inflation rate jumped to 4 per cent from July’s 3.3 per cent. The central bank’s two favoured measures of core inflation also rose, to an average of 4 per cent from 3.75 per cent in July.

Over the past three months – a snapshot that the central bank and many economists have increasingly looked at to gauge the more recent trend –inflation was 4.3 per cent annualized; on a seasonally adjusted basis, it’s closer to 6 per cent.

“Previously, the Bank [of Canada] had been concerned that underlying trends looked like they were stuck around 3.5 per cent – which now seems almost quaint,” Bank of Montreal chief economist Douglas Porter said in a research note.

The temptation is to blame this on the spike in gasoline prices; Statscan itself highlighted this at the top of its CPI report as the key factor in the upturn. But even though gasoline is now adding to CPI again, after having year-over-year declines for the previous six months, which subtracted from overall inflation, it’s important to note that prices at the pump were up just 0.8 per cent from a year earlier. Gasoline is not the problem here.

Where can we find silver linings? Grocery prices actually dipped slightly in August, reducing year-over-year food inflation to 6.9 per cent from July’s 8.5 per cent. Services inflation, which the Bank of Canada had considered a big part of the problem earlier this year, held steady at 4.3 per cent.

But if the central bank were to base its late-October interest-rate decision on this inflation report, it would almost certainly resume rate hikes. There are just way too many inflation pressures visible in this report.

The bank will get one more inflation report, in mid-October, before it makes that decision. But unless it sees clear evidence of improvement, it will be inclined to raise rates one more time.

– Columnist David Parkinson

9:53 a.m.

Gas, food, rent: Inflation highlights for August

Gas prices

For much of the past year, energy prices have helped pull CPI inflation lower. That’s no longer the case. Gas prices were 0.8 per cent higher in August, compared to a year before, and they were up 4.6 per cent month-to-month. Oil prices have risen considerably in recent months following production cuts from Saudi Arabia and other OPEC countries.

Food prices

Food was one of the few bright spots in the August inflation data. Annual grocery price inflation fell to 6.9 per cent from 8.5 per cent in July. On a monthly basis, grocery prices were down 0.4 per cent in August.

Prices for fruit, cereal and chicken rose at a slower year-over-year pace in August than in July; prices for frozen beef, coffee and tea and sugar and confectionary rose more rapidly.

The long, slow return to normal for food inflation in Canada

Food inflation, which continues to outstrip inflation in the rest of the Consumer Price Index, has become a major political issue. On Monday, the federal government summoned executives from Canada’s large grocery chains to Ottawa for a meeting about stabilizing food prices. The government has threatened unspecified tax measures if grocery stores don’t work to get food prices under control

Shelter

Shelter inflation accelerated in August, both for renters and homeowners. Rent increased 6.5 per cent, year-over-year, compared to 5.5 per cent in July. “Among other factors, a higher interest rate environment, which may create barriers to homeownership, put upward pressure on the index,” Statscan said in its report.

Meanwhile, mortgage interest costs were up 30.9 per cent in August compared to a year before, up from 30.6 per cent in July. Mortgage costs have risen sharply over the past year as the Bank of Canada has raised interest rates to slow down the economy and get inflation, more broadly, under control.

Lowest fixed and variable mortgage rates in Canada for September 14

Mortgage interest costs remain the single biggest driver of annual Consumer Price Index inflation. However, the Bank of Canada argues that pushing up prices in this one component of the index is necessary to slow price increases in other parts of the index. “It’s true that if we hadn’t raised interest rates, mortgage costs might be lower today, but inflation throughout the economy would be a much bigger problem for everyone,” Governor Tiff Macklem said in a speech two weeks ago.

Core inflation

The Bank of Canada tends to look through fluctuations in headline CPI inflation, which are heavily influenced by food and gas prices, to gauge the actual inflationary pressures in the economy. In August, these core measures of inflation were moving in the wrong direction. The bank’s two favourite measures of inflation, CPI-trim and CPI-median, rose to 3.9 per cent and 4.1 per cent respectively, up from 3.6 per cent and 3.9 per cent in July. CPI inflation excluding food and energy – another measure of core inflation – came in at 3.6 per cent in August, compared to 3.4 per cent in July.

This is the exact opposite trend the Bank of Canada wants to see, as it tries to bring inflation back down to 2 per cent, and it could increase pressure on the bank to raise interest rates again.

– Mark Rendell

9:36 a.m.

Canada’s inflation rate by province and city

Canada’s annual inflation rate was 4.0 per cent in August, Statistics Canada says. Here’s what happened in the provinces.

Statistics Canada also released inflation rates for major cities, but cautioned that figures may have fluctuated widely because they are based on small statistical samples (previous month in brackets).

• St. John’s, N.L.: 4.2 per cent (2.9)
• Charlottetown-Summerside: 3.6 per cent (2.2)
• Halifax: 4.7 per cent (3.6)
• Saint John, N.B.: 3.3 per cent (3.3)
• Quebec City: 4.8 per cent (4.4)
• Montreal: 5.2 per cent (4.8)
• Ottawa: 3.2 per cent (3.3)
• Toronto: 4.3 per cent (3.7)
• Thunder Bay, Ont.: 4.0 per cent (3.5)
• Winnipeg: 3.4 per cent (2.8)
• Regina: 4.6 per cent (3.1)
• Saskatoon: 5.1 per cent (3.8)
• Edmonton: 4.2 per cent (2.3)
• Calgary: 4.8 per cent (3.4)
• Vancouver: 4.1 per cent (3.7)
• Victoria: 3.4 per cent (2.7)
• Whitehorse: 4.6 per cent (5.2)
• Yellowknife: 3.7 per cent (2.5)
• Iqaluit: 1.9 per cent (2.6)

– The Canadian Press

9:22 a.m.

What is your personal rate of inflation?

What is your personal rate of inflation? It’s probably different from the rate that gets reported by Statistics Canada every month.

The Consumer Price Index comprises hundreds of goods and services that people buy – everything from eggs and electricity to car rentals and cannabis. But this leads to inflation figures that, while informative, aren’t reflective of your circumstances. You probably don’t buy everything on that long list of goods and services – let alone in the same proportions.

Your personal inflation rate: Calculate how you compare to the Canadian average

That’s why The Globe and Mail created this personal inflation calculator, distilling CPI data from April, 2023, to a handful of key categories. Punch in your monthly expenses and the tool will calculate the annual change in consumer prices, based on your budget.

– Globe staff

8:34 a.m.

Canada’s annual inflation rate in August jumped to 4.0%

Canada’s annual inflation rate accelerated for the second month in a row, with both headline and core inflation measures moving markedly higher, Statistics Canada said Tuesday.

The Consumer Price Index rose 4 per cent in August, compared to a year earlier, pushed higher by rising gasoline and shelter prices. That’s up from 3.3 per cent in July and 2.8 per cent in June. Bay Street analysts expected the rate of inflation to be 3.8 per cent in August. The Bank of Canada’s two preferred measures of core inflation – which filter out volatile price movements – also increased to 4.1 per cent and 3.9 per cent, up from 3.9 per cent and 3.6 per cent, respectively. The central bank tends to put more weight on these measures than the headline CPI number when assessing if inflation is moving in the right direction.

Earlier this month, the bank held its key interest rate steady at 5 per cent, but warned that it could restart rate hikes if inflation remains stubborn. It’s trying to bring annual CPI inflation back down to 2 per cent.

Inflation in Canada has retreated over the past year, largely as the result of falling gasoline prices after a spike in the spring of 2022 following Russia’s invasion of Ukraine and the lifting of COVID-19 restrictions. However, the recent rise in global oil prices, alongside less favourable year-over-year energy-price comparisons, is reversing some of that progress. The price of benchmark West Texas Intermediate Crude rose from around US$70 a barrel in June to around US$80 in August and up to US$92 this week.

Shelter inflation increased in August. Rent increased 6.5 per cent, year-over-year, compared to 5.5 per cent in July. Meanwhile, mortgage interest costs, which have risen alongside the Bank of Canada’s aggressive monetary policy tightening campaign, were up 30.9 per cent compared to a year before, roughly the same as in July.

There was some relief on food prices, with grocery prices up 6.9 per cent, year-over-year in August, compared to 8.5 per cent in July.

– Mark Rendell

8:10 a.m.

Help minimize inflation in your grocery bill with our calculator

Is your weekly grocery bill looking a lot higher lately? You can probably blame food inflation for the price changes you’ve seen at the supermarket.

Canada’s annual rate of inflation hiked up in July, although food inflation is slowing. Grocery prices were up 8.5 per cent in July from a year ago, down from a 9.1-per-cent increase in June. Still, shoppers are facing rising prices on their grocery run. Food inflation is hitting inexpensive staples such as bread, pasta and fresh fruit.

If you’re looking for more ways to shield your grocery cart from inflation, this calculator will help you spot ways to bring down costs.

– Globe staff

7:40 a.m.

David Parkinson: Inflation most likely to rise – but that’s not the whole story

It would be a shock if Canada’s overall inflation rate didn’t rise, and fairly significantly, in August. As unpleasant as that might appear, we need to resist getting too hung up on it.

We know that gasoline prices jumped last month, and are once again adding to the national inflation pile after year-over-year declines that significantly tempered inflation numbers for much of this year. That, plus other generally less favourable year-over-year comparisons than we have enjoyed in recent months, have economists expecting headline inflation to rise to about 3.8 per cent, from 3.3 per cent in July. If the number comes in anything below that, we should take that as a minor win.

What will matter much more – and what the Bank of Canada will focus on – are the readings of core inflation. These are the gauges designed to peel back the gyrations in individual components of the Consumer Price Index (CPI), such as the gasoline reversal, and tell us what the broader inflation pressures look like underneath. That’s the trend that will tell us whether the overall economy’s inflation problem is getting better or worse.

In July, the Bank of Canada’s two favoured gauges for core inflation – known as CPI-trim and CPI-median – sat at 3.6 per cent and 3.9 per cent, respectively. They’re essentially unchanged since May, and that’s the bottom-line reason why the central bank is still contemplating further interest-rate increases. If those two measures hold their ground or tick higher, the markets will start booking another quarter-percentage-point hike at the bank’s next rate setting in late October. But if CPI-trim and CPI-median decline, the odds of further rate hikes will fall – even if headline inflation is on the rise.

– Columnist David Parkinson

7:20 a.m.

A look at markets before August’s inflation report is released

Canadian investors will get a reading on August inflation before the start of trading with economists expecting to see an increase in price pressures, partly as a result of higher energy costs. In July, the annual rate of inflation rose to 3.3 per cent from June’s 2.8 per cent. June was marked the first time the annual rate of inflation fell with the Bank of Canada’s target range for the first time since March 2021.

“Canadian inflation is poised to accelerate for a second consecutive month after hitting a two-year low in June,” BMO senior economist Robert Kavcic said in a note.

“Our call would push the yearly rate up six ticks to 3.9 per cent, a four-month high,” he said. “The Bank of Canada’s core inflation metrics are expected to remain about steady in August...Overall, this report will keep the BoC on alert to rising inflation expectations, and do nothing to dissuade the belief that underlying price pressures will take time to ease.”

Read what else investors can expect today.

– Terry Weber

7:00 a.m.

Inflation report to be released today

Economists are forecasting that inflation reaccelerated to around 4 per cent last month, reversing previous progress made as gasoline prices push inflation higher.

Statistics Canada’s August Consumer Price Index report set to be released Tuesday is expected to show the annual inflation rate rose for a second month in a row.

Canada’s inflation rate tumbled to 2.8 per cent in June, entering the Bank of Canada’s target range of 1 per cent to 3 per cent for the first time since March, 2021. The celebrations on reaching that benchmark were short-lived, however, as inflation ticked up the next month.

The Bank of Canada has kept the door open to more rate hikes in part because it expects getting inflation down to 2 per cent will take some time. But economists say the recent slack in the economy will likely convince the central bank to remain on the sidelines.

– The Canadian Press