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Lower Gasoline Prices Continue to Weigh on Inflation

Sep 18, 2019

Ottawa, September 18, 2019—The Conference Board of Canada’s Principal Economist Alicia Macdonald offers the following insights on today's Consumer Price Index data:

“The Consumer Price Index was up 1.9 per cent on a year-over-year basis in August, down slightly from 2.0 per cent in July. The average of the Bank of Canada’s three measures of inflation held steady at 2.0 per cent. With inflation anchored at the Bank’s target, we will not see the Bank of Canada cut interest rates this year.”

Insights:

  • Inflation increased at a 1.9 per cent pace in August, a tad softer than the 2.0 per cent gain observed in the previous month.
  • Excluding the impact of gasoline, which was down 10.2 per cent over last August, inflation held steady at 2.4 per cent.
  • Mortgage interest costs continue to put upward pressure on inflation, although the pace of increase has slowed in recent months alongside lower mortgage rates. After peaking at an 8.2 per cent increase in May, mortgage interest costs were up 7.8 per cent in April.
  • Lower costs for new housing—as measured by the homeowners’ replacement cost index—are putting downward pressure on prices. This index was down 0.7 per cent last month, its largest drop since January 2010.
  • Averaging the Bank of Canada’s three measures of core inflation show price growth is right at the Bank’s 2.0 target although growth in CPI-common nudged down 0.1 percentage points to 1.8 per cent in August.
  • With inflation at target, the Bank of Canada can continue to be patient as it weighs the impact of heightened trade uncertainty on Canada’s economic outlook. As such, we expect the Bank to remain on the sidelines through the rest of this year.

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