Canadian consumer prices dipped 0.1% in August on an unadjusted basis, trimming the annual
headline inflation rate a notch to 1.7% from 1.8% in July. The results were a touch lower than expected, as a broad-based decline in energy prices was the major factor behind the drop. At the same time, core prices nudged up 0.1%, holding the annual trend in underlying inflation steady at 1.6%, which again was a tad below the consensus call.
Core inflation is well on track to undershoot the Bank of Canada’s call of a 1.8% average for all of Q3. In seasonally adjusted terms, core prices were flat in August, and the six-month trend has ebbed to a mere 0.3% annual rate, which is the lowest pace in more than 25 years of data.
There were no major stand outs, as prices fell in 5 of the 8 major categories in seasonally adjusted terms. Shelter costs dropped heavily on declines in mortgage costs and home insurance (down 2.8%). Services dipped 0.2%, and some of this broad-based weakness may reflect follow-through from the HST in the prior month, as prices adjust down a bit after the initial pop. Overall prices were flat in Ontario (but up a Canada-high 2.9% y/y in the province) and were down 0.1% in B.C. (and up a moderate 1.5% y/y in that province, where anti-HST sentiment has been riding high, to put it mildly).
B.C.’s inflation rate is below the national average, and is lower than in three of the Atlantic provinces.
The Bottom Line: Inflation remains well under wraps in Canada. If anything, some measures of core
inflation trends are even lower than in the U.S., where deflation chatter is rampant. If growth
weakens further, inflation certainly poses no constraint should the Bank of Canada choose to suspend its rate hike campaign.
Douglas Porter
