The price of food continued to increase in August, according to Statistics Canada data released September 18, but overall inflation held steady in the month because of lower energy prices.
Prices grew 1.3% overall year-over-year in August – the same increase seen a month prior. Over the same period, energy prices fell 7.2% and gasoline was down 12.6%.
“Oil and gasoline prices remain well below levels seen a year ago and continue to weigh on headline inflation,” said TD Economics’ Dina Ignjatovic.
“However, the significant depreciation in the Canadian dollar over the last year has made imported goods more expensive, which has helped to keep core inflation above the Bank of Canada’s 2% target.”
The cost of food grew 3.6% year-over-year. Meat prices continued to soar, rising 6.3% year-over-year after a 6.6% jump last month. Prices in most other sectors were also up, notably alcoholic beverages and tobacco products, up 2.8%, and household operations, furnishings and equipment, up 2.5%.
The cost of transportation was down 2.3%, and this decline wasn’t solely attributable to low oil and gas prices.
“A sharp deceleration in vehicle purchase prices was the key culprit behind the drop in the sector, although lower gasoline prices also contributed,” Ignjatovic said.
The core index, which excludes the most volatile components such as fruit, vegetables, fuel and mortgage interest, increased 2.1% after growing 2.4% last month.
“The core inflation rate held above the Bank of Canada’s mid-range target of 2.0% for more than a year,” said RBC Economics assistant chief economist Dawn Desjardins.
“Even in August 2015, when some of the earlier upward pressure from transitory factors related to a surge in telecommunication charges in August 2014 dropped out of the measure, the rate was 2.1%, with 60.7% of the index posting increases of 2.0% or more.”
Overall, economists are saying this latest data is indicative of a strengthening Canadian economy, meaning the country may be gaining back some of the ground lost in the first half of the year.
“These increases would almost retrace the declines in GDP recorded in the first five months of 2015 and set the economy on course to post a 1.0% increase in 2015 despite a very sluggish first half,” said Desjardins.
Ignjatovic agreed that a recovery is likely.
“The expected improvements in economic activity, combined with inflation still within the Bank [of Canada]’s comfort zone, suggests that current monetary policy is appropriate at this time,” she said.
“While there is some bias for another rate cut should the economic recovery not evolve as expected, we remain of the view that the Bank will keep rates on hold until the second half of 2017.”
The news was somewhat negative for the Canadian dollar, which fell from 76.80 cents U.S. to closer to 76 cents, losing some of the ground gained yesterday when the U.S. Federal Reserve announced it would not be hiking interest rates.
