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Canada’s inflation rate remained stalled last month, evidence that the economy is still severely weakened by the COVID-19 crisis despite its rapid rebound since the lifting of lockdowns.

Statistics Canada reported Wednesday that the consumer price index (CPI) 12-month inflation rate was just 0.1 per cent in August, the second straight month at that low level, amid slumping prices for air travel and at the gas pumps. On a month-over-month basis, the index actually fell 0.1 per cent in August from July.

The nature of the crisis itself has made measuring inflation problematic, as forced closures of some segments of the consumer economy, continuing restrictions on others and work-from-home policies have led to hard-to-quantify changes in consumption patterns. Nevertheless, the stubborn weakness in consumer inflation is a sign of an economy still running far below capacity, despite the gradual resumption of activity after the widespread shutdowns this spring aimed at containing the pandemic.

Inflation had slipped into negative territory in the spring but bounced back in June as the economy reopened. Since then, however, price growth has stalled at near-zero, amid high unemployment and with some key parts of the consumer economy still crippled by shutdowns and restrictions.

“Expect headline inflation to remain soft for the rest of this year, as the economy reaches a ceiling with the virus yet to be eradicated,” Canadian Imperial Bank of Commerce senior economist Royce Mendes said in a research report.

The inflation reading is a far cry from the Bank of Canada’s target of 2 per cent – the level considered indicative of sustainable full capacity for the economy. However, the central bank’s three measures of “core” inflation – aimed at filtering out transitory price swings in segments of the CPI – look healthier than the pandemic-distorted CPI number, averaging 1.7 per cent, up from 1.6 per cent in July.

“While that might help [Bank of Canada] Governor [Tiff] Macklem sleep a bit better at night, it’s far enough away from the target for inflation that the central bank will still be more concerned with disinflationary pressures, particularly given the historically high unemployment rate,” Mr. Mendes said.

“With little in the way of inflation, the Bank of Canada has no reason to change its communication that interest rates will remain low for an extended period of time in order to support a stronger economic recovery,” Toronto-Dominion Bank senior economist James Marple said in a research note.

The pandemic’s impact on the inflation picture was most evident in prices for two key consumer products that typically rise in the summer due to high demand: Airline tickets were down 16 per cent in August compared with a year earlier, while gasoline was down 11 per cent.

Statscan said that excluding gasoline – a major component of the CPI – year-over-year inflation was 0.6 per cent in August, down from 0.7 per cent in July.

On the other hand, economists noted evidence that some businesses whose costs have been increased by pandemic measures have started passing those costs along to customers. Prices for personal care services were up 7.2 per cent from a year earlier, mainly reflecting price increases at hair salons, which have been forced to take new virus-containment precautions since reopening.

Economists said those pockets of price increases in the service industry may suggest more upward price pressures to come from the pandemic fallout.

“It seems likely that other services firms, including restaurants, will soon be forced to follow hair salons in raising their prices. That could cause core inflation to rise sooner than we anticipate,” said Stephen Brown, senior Canada economist for Capital Economics.

“All in all, the struggling economy in the coming months will put some disinflationary pressures on prices. However, this recession is atypical, in a sense that the shuttering of certain supply chains and rising operational costs due to social distancing could have the opposite effect going forward,” added National Bank of Canada economists Matthieu Arseneau and Kyle Dahms in a research report.

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