The latest on inflation in Canada
Canada’s inflation rate dipped to 3.8 per cent in September, and came in lower than expected, perhaps alleviating pressure on the Bank of Canada to resume hiking interest rates on Oct. 25.
- David Parkinson: September data is reason to hold key rate
- Rob Carrick: Inflation is too high
- Highlights: Groceries and gas
- Markets trim bets on another rate hike
- Calculate your personal inflation rate
- Use our inflation grocery calculator
Find updates from our reporters and columnists below.
Canada’s inflation rate is 3.8% in September. Here’s what happens next
The next big date on the economic calendar is Oct. 25, when the Bank of Canada makes a decision on interest rates.
However, the outcome could be a foregone conclusion: After Tuesday’s inflation report, analysts on Bay Street largely predicted the BoC will hold its key rate steady at 5 per cent next week, in what could prove to be the terminal rate for this cycle.
The central bank will also publish its quarterly Monetary Policy Report, which includes economic projections. Some of the main things to watch for are whether the bank will stick with its timeline of a return to 2-per-cent inflation by mid-2025 and whether it downgrades the outlook for economic growth, given some weak numbers of late.
Another key report is the Labour Force Survey on Nov. 3. Central bankers have pointed to elevated wage growth as a factor in stubborn inflation, so they’ll be looking for moderation on that front.
The good news for consumers in September’s inflation data
It’s a sign of the times that an annual inflation rate of 3.8 per cent is good news, but that’s what the latest report on consumer prices from Statistics Canada delivered.
There are several things in the September inflation data to cheer up consumers.
Variable-rate debt and fixed-rate mortgages
First and foremost, the overall annual inflation number – showing that the annual pace of inflation slowed to 3.8 per cent in September compared to 4 per cent in August – was better than economists had expected. This lowers the chances of further interest rate hikes by the Bank of Canada, which is due for another rate decision on Oct. 25. Canadians with variable-rate mortgages, balances on their lines of credit and other variable-rate credit can likely draw a sigh of relief.
Better than expected inflation data is also positive news for anyone hoping to get or renew a fixed-rate mortgage. Fixed mortgage rates are heavily influenced by the bond market, which loves a good-news inflation story. Yields on five-year Canada bonds, which affect mortgage lenders’ own costs and what they charge borrowers, had fallen to 4.29 per cent as of 9:20 a.m.
Gasoline prices were up 7.5 per cent year-over-year in September, compared to 0.8 per cent in August. But those annual numbers are a little deceiving.
The September-over-September price comparison looks bad because gasoline prices saw a steep dive back in September, 2022, amid an increase in global crude oil supplies.
When you look at what’s happened with gasoline prices since last month, it’s clear that pain at the pump has eased slightly for Canadians. Gasoline prices declined by 1.3 per cent on a monthly basis.
Airfares were down 21.1 per cent this September compared to this time last year.
When it comes to air travel costs, it’s important to look at year-over-year changes, because airfare is so heavily affected by seasonal price fluctuations (for example, every year, plane tickets tend to cost less in September compared to August).
The hefty year-over-year decline is a clear win for consumers. Statistics Canada linked the price drop to “a gradual increase in flights offered by airlines over the previous 12 months.”
Cars and durable goods
Passenger vehicle prices are growing at a slower pace. That’s not as good as prices declining, but it’s something. Prices were up 1.7 per cent year-over-year in September, compared to 3.1 per cent in August. Statistics Canada said the deceleration was in part due to improved inventories.
Other kinds of durable goods, meanwhile, saw some actual price declines compared to this time last year. Furniture prices were down 4.6 per cent year-over-year and household appliances down 2.3 per cent.
Economist reaction to September inflation data
Andrew Grantham, senior economist at CIBC
“A 3.8 per cent rate of inflation is never good, but for this month it was probably the best that we could have hoped for…. Today’s unexpected deceleration in inflation doesn’t fully offset the upside surprises of the past few months, and for Q3 as a whole the annual rate of inflation’s average of 3.7 per cent is still well above the 3.3 per cent projection in the Bank of Canada’s last Monetary Policy Report. However, with activity in the economy stalling in Q2 and Q3, excess demand appears to be diminishing, suggesting that inflation should continue to decelerate in the quarters ahead without the need for further interest rate hikes.”
Royce Mendes, head of macro strategy Desjardins
“Just 40 per cent of the CPI basket is now above 5 per cent, a 10 percentage point drop from the previous month, suggesting that price stability is now in sight. The slowdown in most measures of inflation combined with the lower volatility across categories should easily give the Bank of Canada enough confidence to hold rates next week. We continue to believe that the central bank is done for the cycle and that shorter-dated yields are attractive at these levels in Canada. Rates are falling after the release of the data, but we see more room for them to fall at the short-end.”
Marc Ercolao, economist TD
“Markets have significantly reduced their pricing of the probability of an interest rate hike at next week’s meeting. Bond yields also slid by 8 basis points (bps) and 4 bps for the 2 and 10-year yield, respectively. With today’s inflation print, the BoC is now equipped with all relevant data before making their policy decision next week. Alongside other measures that have shown momentum in cooling in Canada’s economy, we see enough evidence for the BoC to stand on the sidelines next week, holding the policy rate at 5.00 per cent.”
Benjamin Reitzes, Managing Director of Canadian rates at BMO
“With the Business Outlook Survey pointing to ongoing struggles for the economy (which saw GDP flat-line in the six months to July), and inflation coming in below expected, look for expectations to solidify around the BoC holding policy steady next week. The level of inflation remains much too high for comfort, but the trend is the BoC’s friend here. Given that inflation is the most lagging of indicators, and the economy is clearly weakening, we’re likely to see ongoing disinflationary pressure...there’s no need for further rate hikes in Canada.”
David Parkinson: September inflation data gives BoC good reason to hold key rates steady
If the Bank of Canada was looking for an excuse to hold its key interest rate steady at next week’s setting, the September inflation report just handed it one on a platter.
The year-over-year inflation rate ticked down to 3.8 per cent, lower than most economists had predicted. More importantly, the Consumer Price Index (CPI) actually declined month over month (non-seasonally adjusted), and that decline was notably broad-based. Four out of eight component groups fell, while two others inched up just 0.1 per cent. Goods prices were down, including a deep 0.6-per-cent contraction in durable goods. Services prices were flat. Heck, even food prices – food prices! – declined from August.
Importantly, the Bank of Canada’s two measures of core inflation also fell. CPI-trim dipped to 3.7 per cent from 3.9 per cent in August, while CPI-median dropped to 3.8 per cent from 4.1 per cent. For the CPI-median measure, that’s the lowest it has been in 19 months.
Desjardins economist Royce Mendes noted that on a year-over-year basis, 40 per cent of the basket of goods and services that make up CPI are up more than 5 per cent – a plunge of 10 percentage points from the August report. That’s huge. It speaks to a fading of broad price pressures.
There will, of course, be nagging worries for the central bank. This is still 3.8 per cent - up a full percentage point from the recent low point in June, and a half-point higher than the bank projected for the third quarter in its July economic forecasts. (Those forecasts will be updated in next week’s Monetary Policy Report, to be published on the same day as the bank’s next rate decision.) Inflation is still tracking higher than the bank had expected entering the fourth quarter. And the bank’s quarterly consumer expectations survey, released Monday, shows that inflation perceptions and expectations remain troublingly elevated.
But the bank has been sounding reluctant to raise rates any further unless the economic data force its hand. These inflation numbers most certainly don’t do that. Rather, they suggest that a broad-based, sustainable easing of price pressures that the bank has been looking for may be gaining traction.
– Columnist David Parkinson
Another Bank of Canada rate hike? Financial markets trim their bets
Financial markets trimmed bets on further Bank of Canada tightening, with interest rate swaps now pricing in less than a 20 per cent chance of another rate increase on Oct. 25, down from around 40 per cent on Monday, according to Refinitiv data.
Bond prices rose and yields dropped – the two moved in opposite directions. Yields on two-year Government of Canada bonds fell to around 4.88 per cent, while yields on five-year Canada bonds, which underpin much of the mortgage market, fell to 4.29 per cent. The Canadian dollar weakened against the U.S. dollar, losing around a third of a cent after the inflation announcement, before regaining some of that ground in morning trading.
Inflation highlights: Grocery inflation slowing, gas prices on a rollercoaster
The situation is improving at supermarkets.
Grocery prices rose 5.8 per cent in September from a year earlier, down from a 6.9-per-cent pace in August. At peak levels, grocery inflation was running at more than 11 per cent. This deceleration was foreshadowed by weaker price increases – or even declines – at earlier stages of the supply chain.
Over the past year, prices have risen 4.4 per cent for meat, 4 per cent for dairy products and 3 per cent for fresh fruit. However, Statscan cautioned that prices were being compared to a spike last year, a “base-year effect” that is leading to more subdued numbers.
Shelter costs rose 6 per cent on a 12-month basis, matching the increase in August. Rents jumped 7.3 per cent in September, up from 6.5 per cent in August, a sign of how Canada’s housing shortage is factoring into inflation figures.
Durable goods barely budged in September, rising just 0.4 per cent in price from a year earlier. As supply chains have improved, many goods have not only become easier to buy, but cheaper. The chill in real-estate activity is also weighing on the retail space. Furniture prices dropped 4.6 per cent over the past year, while household appliances were down 2.3 per cent.
Gasoline is on a rollercoaster ride of sorts. Year over year, gasoline prices were up 7.5 per cent, quickening from August’s 0.8-per-cent increase. This was mostly because of base-year effects, as gas prices fell sharply at the end of summer 2022. However, gas prices managed to fall slightly (1.3 per cent) in September from August.Excluding gasoline, the CPI rose 3.7 per cent in September, down from 4.1 per cent in August.
Rob Carrick: Inflation is still too high for everyone
Inflation at 3.8 per cent is too high for everyone – the Bank of Canada, families, businesses and more. But inflation’s resilience cannot be overstated. Interest rates have soared, and growth in consumer spending has started to ease. Why won’t inflation go away?
The Bank of Canada’s inflation calculator offers a long-term perspective on inflation. A 50-year lookback tells us that the average inflation rate over that period was 3.85 per cent, pretty much in line with the September data.
The past 50 years included a massive run-up in inflation and then a long 30-year decline, which abruptly ended last year, when the central bank started cranking interest rates higher. The takeaway here is that we’re seeing inflation at a familiar level. Today’s rate isn’t a freakish anomaly.
The Bank of Canada wants inflation closer to 2 per cent, and who doesn’t agree with that goal? But inflation is driven by events both inside and outside Canada, including conflicts in the Middle East and Ukraine. Other factors driving inflation include upward pressure on wages here in Canada and global supply chain issues that keep food prices rising.
We’ll get back to inflation around 2 per cent, but there are likely some plot twists ahead. Five thoughts on what to do while we wait for inflation to fall:
- Postpone big purchases like a new vehicle – financing rates and prices are sky high.
- Protect your credit score by avoiding late payments on credit cards and cell phones.
- Contact your lender if you’re having trouble paying your mortgage, and do it well before you hit the financial wall.
- Save where possible – the rates on safely parked money haven’t been this high in decades.
- Ask for a raise or seek a promotion at work – this may be your last chance because the job market is already cooling.
– Rob Carrick
Markets immediately reacted by sending the Canadian dollar lower by about half a cent to about 73 cents US. Canada’s 2-year bond yield, which is sensitive to central bank policy moves, came down sharply as well but was still positive in the wake of the 830 am ET report, fetching 4.926 per cent, up about 2 basis points. It was near 5 per cent before the data hit.
Inflation across Canada
Canada’s national annual inflation rate was 3.8 per cent in September, Statistics Canada says. Here’s what happened in the provinces:
3.8 per cent inflation lower than expected ahead of Bank of Canada decision next week
Canada’s inflation rate dipped in September and came in lower than expected, perhaps alleviating pressure on the Bank of Canada to resume hiking interest rates next week.
The Consumer Price Index rose 3.8 per cent on an annual basis in September, from 4 per cent in August, Statistics Canada reported on Tuesday. Analysts on Bay Street were expecting inflation to hold steady at 4 per cent.
The Bank of Canada has warned that bringing inflation back to its 2-per-cent target could be a bumpy ride, and that’s proven to be the case. After easing to 2.8 per cent in June, the annual inflation rate climbed over the summer, largely because of higher energy prices.But in a similar manner, gasoline prices took some steam out of September’s results. On a monthly basis, the CPI fell 0.1 per cent from August, which Statscan said was mainly driven by gas.
The Bank of Canada’s preferred measures of core inflation, which remove volatile movements in the CPI, also decelerated last month.
Tuesday’s inflation report was the last set of major economic data before the Bank of Canada makes its next interest-rate decision on Oct. 25. To date, the bank has raised its benchmark interest rate to 5 per cent – the highest since 2001 – from crisis lows of 0.25 per cent. This tightening of monetary policy is weighing on household and government finances, and economic growth has stagnated.
Still, there are pockets of resilience – notably, a labour market that continues to churn out jobs, with average wage growth running at annual rates of 5 per cent.
Canada annual inflation rate edges down to 3.8 per cent in September
Canada’s inflation rate dipped to 3.8 per cent in September, from 4 per cent in August, Statistics Canada said Tuesday in a report.
Early Tuesday, Statistics Canada will release inflation data for September. Economists are expecting a pullback from the 4-per-cent annual rate reported in August.
RBC chief currency strategist Adam Cole says that bank’s economists expected to see an annual rate of 3.8 per cent in September.
“Year-over-year growth in energy prices likely accelerated,” Mr. Cole said. “But food price growth is expected to continue to trend lower and the BoC has been more concerned about recent price growth in a range of core measures designed to be a better gauge of broader Canadian inflation pressures.”
He said inflation is expected to slow slightly on both of the core measures.
The report comes ahead of the Oct. 25 rate announcement from the Bank of Canada. In advance of Tuesday’s inflation reading, money markets saw about a 40-per-cent chance that the central bank will raise rates at that meeting.
What is your personal rate of inflation? It’s probably different than the rate that gets reported by Statistics Canada every month.
The Consumer Price Index comprises hundreds of goods and services that people buy – everything from eggs and electricity to car rentals and cannabis. But this leads to inflation figures that, while informative, aren’t reflective of your circumstances. You probably don’t buy everything on that long list of goods and services – let alone in the same proportions.
That’s why The Globe and Mail created this personal inflation calculator, distilling CPI data from April, 2023, to a handful of key categories. Punch in your monthly expenses and the tool will calculate the annual change in consumer prices, based on your budget.
– Globe staff
David Parkinson: Silver linings in September inflation?
Interpreting Tuesday’s inflation data will be an exercise in hunting for silver linings.
On an overall basis, this report probably won’t induce cartwheels. We’re unlikely to see September’s headline inflation rate get much better than August’s 4 per cent; several Bay Street economists think it will get a little worse. Either way, we’re talking about a pace of consumer price growth that’s about double the Bank of Canada’s 2-per-cent target, and has drifted further away from that goal in the past few months.
If there’s a surprise in that headline number – more than a couple of tenths of a percentage point, upward or downward – it could well tip the scales for the Bank of Canada’s next rate decision, just eight days from now. It’s more likely, though, that the overall inflation rate will remain in the 4-per-cent ballpark, and the central bank – along with the rest of us – will be sifting through the details for signals that inflation pressures are easing below this bloated surface.
The keys will be the various core measures for inflation, the breadth of the price changes, and the shorter-term trend. These could provide better signals than the headline inflation rate, which, as a year-over-year gauge, can often be unduly distorted by price shifts that took place a year earlier.
In terms of core inflation, the Bank of Canada relies heavily on its two preferred measures, called CPI-median and CPI-trim. Both are designed to filter out unusual price moves in a small number of items in the Consumer Price Index, to better show the underlying inflation trend. Both rose slightly in August; the central bank won’t be happy if that continues.
A quick and easy way to assess the breadth of inflation is to simply look at how many of the CPI’s eight major component groups are showing overheated inflation. In August, when the rate clocked in at 4 per cent, four of the eight groups posted inflation of 2.3 per cent or lower; the other four were all above 5 per cent. The split indicates that inflation, while still much too high, is no longer problematic across the entire economy. Further pockets of easing price pressures would indicate progress in the inflation fight, even if the headline number remains sticky.
The month-over-month inflation rate can be volatile, but it can also signal pivot points in inflation. A lot of economists, including those at the Bank of Canada, have also been putting increasing emphasis on three-month inflation, which gives a valuable sense of the recent trend.
Is your weekly grocery bill looking a lot higher lately? You can probably blame food inflation for the changes you’ve seen at the supermarket.
If you’re looking for more ways to shield your grocery cart from inflation, this calculator will help you spot ways to bring down costs.
– Globe staff
September Inflation report to be released today
Of late, inflation in Canada is heading in the wrong direction: up. After ebbing to 2.8 per cent in June, the annual rate of consumer price growth has risen to 3.3 per cent in July and 4 per cent in August. Economists expect inflation to hold steady at 4 per cent when figures for September are published by Statistics Canada on Tuesday.
The recent upturn is mostly because of higher fuel prices. However, the Bank of Canada’s preferred measures of core inflation, which remove volatile components of the Consumer Price Index, remain uncomfortably high. Another concern is that costs related to housing – such as rent – are climbing at a quick pace.
The Bank of Canada will be paying close attention to Tuesday’s report ahead of its next interest rate decision on Oct. 25. The central bank has already raised its benchmark lending rate to 5 per cent from emergency lows of 0.25 per cent over the past 18 months.
The question is whether rates are sufficiently restrictive to bring inflation back to the Bank of Canada’s 2-per-cent target. The central bank projects it will fulfil that goal by the middle of 2025 – a slower timeline than previously envisaged.
Analysts on Bay Street are divided over the Bank of Canada’s next move, though most are expecting rates to hold steady. Financial markets are pricing in a 40-per-cent chance of a quarter-point rate hike.