Canadian consumer prices rose an unadjusted 0.2% in September (+0.3% sa), lifting the annual
inflation rate to 1.9% y/y, the highest since November-2008, from 1.7% y/y in the prior month—the gain was in-line with the consensus view.
However, core prices rose a seasonally-adjusted 0.2%, which was softer than expected, and pulled the annual rate down a tenth to 1.5% y/y. For all of Q3, core inflation was running at 1.6% y/y, on the mark set in this week’s Bank of Canada Monetary Policy Report, but the softer September reading highlights the fact that plenty of slack remains in the Canadian economy—the Bank expects the core rate to remain at 1.6% in Q4 as well.
There were no major standout categories in September, with half of the eight major groups seeing
seasonally-adjusted declines. Food prices (+0.2%) saw the biggest gain, while health and personal care (-0.3%) saw the biggest drop.
Gasoline prices fell 0.3% (nsa), and mortgage interest costs (-0.1%) dipped for a second straight month as five-year fixed mortgage rates are essentially back to their recession low in Canada. The impact of the strong loonie can be seen in clothing and household furnishings prices, which are both well below year-ago levels. Finally, September was back-to-school month, and tuition increases drove a 3.1% jump in education costs.
At the regional level, HST-affected Ontario continues to see the country’s highest inflation rate
(+2.9% y/y), with Newfoundland (+2.3%) next in line. No provinces saw prices below year-ago levels in September.
The Bottom Line: Inflation remains tame in Canada, which will allow the Bank of Canada to stay on
hold well into 2011.
Robert Kavcic
