Canada’s annual inflation rate reached the Bank of Canada’s 2% target last month, according to data from Statistics Canada released on Tuesday.
News of Canada hitting the 2% target has many Canadians eager to know if the central bank will further cut its interest rate by another 50-basis-points in October.
According to StatsCan, core price measures cooled to their lowest levels in the past 40 months and the consumer price index posted its smallest rate of increase since February 2021.
According to the CPI, consumer prices dropped by 0.2% on a month-on-month basis.
“On a monthly basis, the CPI fell 0.2% in August, after a 0.4% increase in July. The monthly decline was led by lower prices for air transportation, gasoline, clothing and footwear and travel tours. On a seasonally adjusted monthly basis, the CPI rose 0.1% in August,” reads the report.
“The deceleration in headline inflation in August was due, in part, to lower prices for gasoline, due to a combination of lower prices and a base-year effect. Excluding gasoline, the CPI rose 2.2% in August, down from 2.5% in July.”
However, mortgage interest cost and rent remained the largest contributors to the CPI increase last month.
The Bank of Canada’s governor Tiff Macklem said that future rate cuts can be expected as long as the trend of easing inflation continues during the central bank’s latest announcement earlier this month.
“If inflation continues to ease broadly in line with our July forecast, it is reasonable to expect further cuts in our policy rate,” said Macklem. “We will continue to assess the opposing forces on inflation, and take our monetary policy decisions one at a time.
The Bank of Canada cut its key interest rate by 25 basis points on September 4, bringing it to 4.25% and marking the central bank’s third consecutive decision to do so over the past year.
However, Canada’s economic growth has been slowing, with GDP likely to fall to half of the central bank’s forecast in the third quarter.
Still, many economists expect a 50-basis-point cut next month as unemployment hit a seven-year low last month, barring the pandemic years.
Prices have been easing, aided primarily by a drop in the cost of gasoline which fell by 5.1%.
Telephone services, clothing and footwear also saw a decrease in costs.
However, shelter costs rose 5.2% last month, with mortgages continuing to cool at a very slow pace and rents maintaining their relentless trend of increasing.
The cost of groceries also continues to be a thorn in the side of Canadian consumers.
“On a year-over-year basis, consumers paid 2.4% more for food purchased from stores in August after a 2.1% increase in July. This was the result of a base-year effect, notably coming from prices for dairy products (+3.3%) and fresh fruit (+1.5%),” reads the CPI report.
Additionally, the Canadian dollar decreased in value when compared to the US dollar last month, with CAD $1 dropping to a worth of USD 73.59 cents.
The Bank of Canada predicts annual inflation will be at 2.6% this year and drop to 2.4% next year before coming down to its target range of 1-3% in 2026.
According to economist Emmanuelle B. Faubert with the Montreal Economic Institute, these increased costs can largely be traced back to government overspending.
“Government overspending is one of the reasons we’ve seen inflation go as high as it did. If Ottawa was careful with taxpayer money we would not be in this situation,” Faubert told True North.
“Further rate drops could be even closer if the Trudeau government ceased its continuous deficit spending.”