Canada’s inflation reaches central bank’s 2% target in August

7 days ago

2 minutes read

2024.09.17 09:48

By Promit Mukherjee

OTTAWA (Reuters) -Canada’s annual inflation rate reached the central bank’s 2% target in August, its lowest level since February 2021, data showed on Tuesday.

The closely watched core price measures also cooled to their lowest levels in 40 months while month-on-month consumer prices deflated by 0.2%, Statistics Canada said.

Analysts polled by Reuters had forecast the consumer price index (CPI) would cool to 2.1% from 2.5% in July on an annual basis, and expected it to be unchanged on a monthly basis.

The Canadian dollar weakened on the news, dipping 0.2% to C$1.1361 to the U.S. dollar, or 73.45 U.S. cents.

The easing of price pressures was primarily helped by a drop in prices of gasoline, telephone services and clothing and footwear, while shelter costs – mortgage and rents – continued to cool at a tepid pace as rents maintained their relentless rise.

At the Bank of Canada’s monetary policy decision announcement earlier this month, Governor Tiff Macklem said the central bank had to increasingly guard against the risk that inflation could fall below its target as economic growth was weak.

The BoC has reduced its key policy rate three times in a row, cutting by a cumulative 75 basis point to 4.25%.

Money markets are fully pricing in 25-basis-point rate cuts at each of the last two monetary policy meetings of 2024. Expectations of a jumbo 50-basis-point cut next month rose to 47.5% from 46% before the data were released.

“Inflation remains unthreatening and the Bank of Canada should now focus on trying to stimulate the economy and halting the upward climb in the unemployment rate,” Andrew Grantham, senior economist at CIBC, wrote in a note.

“We continue to forecast a further 200 bp of interest rate cuts between now and the middle of next year,” he said.

The BoC had predicted annual inflation to be at 2.6% this year and fall to 2.4% next year before coming down to its mid-point of the target range of 1-3% in 2026.

CPI-median – or the price change located in the middle of the CPI basket – slowed to 2.3% in August from 2.4% in July annually. CPI-trim – which excludes the most and the least volatile price items – cooled to 2.4% from 2.7%.

Gasoline prices, which contributed the most to the fall in inflation, fell by 5.1% and those for clothing and footwear fell by 4.4%.

Shelter costs, which account for close to 30% of the CPI basket, rose 5.2% in August, from 5.7% in July, primarily led by mortgage interest costs and rents.