Canada’s inflation rate jumped to four per cent last month, as economists warn the latest consumer price index report spells bad news for the Bank of Canada.
Statistics Canada released its latest inflation reading on Tuesday, which shows the annual rate rose from 3.3 per cent in July, marking the second consecutive month inflation has risen.
Forecasters were widely anticipating inflation to come in hotter last month due to higher gasoline prices. But Tuesday’s report was even more discouraging than many expected.
“What is the most concerning is that (inflation) accelerated more than (expected) and that we also saw some core measures of inflation that the Bank of Canada track, accelerate as well,” said Andrew Grantham, CIBC’s executive director of economics.
Core measures of inflation strip out volatility in prices and play a significant role in how the Bank of Canada judges inflationary pressures.
With this latest uptick in price growth, Grantham said inflation during the third quarter is now on track to come in higher than the Bank of Canada forecasted in July.
The central bank is slated to make its next interest rate decision on Oct. 25 — a decision that economists say just got tougher.
“This is a very difficult decision,” said Grantham.
Earlier this month, the Bank of Canada decided to hold its key interest rate steady earlier this month as the economy slows.
Recent data showed the economy shrank in the second quarter while the unemployment rate has trended higher.
Statistics Canada released its latest job vacancies report Tuesday as well, which shows vacancies continue to rise.
Now, the central bank will have to weigh that data against higher inflation figures and decide which matters more.
“Our view at the moment is that they’re going to place weight on the weakening of the economy,” Grantham said, though he noted the next rate decision will be a “close call.”
A slight silver lining to Tuesday’s report is that grocery prices are rising more slowly, with prices up 6.9 per cent from a year ago compared with a reading of 8.5 per cent last month.
Meanwhile, grocery prices fell by 0.4 per cent between July and August.
“I do think that the rate of inflation for groceries will continue to decelerate,” Grantham said.
“(But) if you’re the average Canadian, average household, you don’t want prices to just stop rising, you want them to kind of come down a little bit from these very high levels. I’m not sure that’s going to happen anytime soon, unfortunately.”
Higher grocery prices have been a major pain point for Canadian families, particularly those with lower incomes who spend a larger share of their earnings on food.
Industry Minister François-Philippe Champagne met with top executives of Canada’s major grocery chains on Monday to discuss measures to stabilize prices.
After the meeting, Champagne said the grocers agreed to work with the federal government, but few details were provided on how prices could be stabilized.
Nojoud Al Mallees, The Canadian Press
This report by The Canadian Press was first published Sept. 19, 2023.