Quick Take

Inflation stalled at 0.1 per cent due to suppressed oil prices and weak demand for travel

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The Conference Board of Canada’s Economist Anna Feng offers the following insights on today’s Consumer Price Index (CPI) data

Inflation inched up 0.1 per cent in August, matching its growth in the previous month. Suppressed oil prices and muted growth of transportation and other tourism-related prices were the main downward contributors to last month’s Consumer Price Index. Core inflation sat at 1.7 percentage points, having inched up 0.1 percentage points closer to the Bank of Canada’s 2.0 per cent target. The data also suggests that businesses have started to pass some of the costs related to the implementation of safety measures onto consumers. We expect this trend will result in a pick-up in consumer prices in the near term.

  • The year-over-year growth in the Consumer Price Index edged up 0.1 per cent in August, matching the increase in July.
  • The surge in world coronavirus cases last month has slowed down the path of economic recovery, thus weakening global demand for oil. As a result, gasoline prices declined 0.8 per cent in August compared to July, following three consecutive months of rapid growths. This leaves gas prices 11.1 per cent lower than where they stood a year-ago. Excluding gasoline prices, inflation was up 0.6 per cent in August on a year-over-year basis.
  • As tourism activities remained in the doldrums, prices for air transportation (down 16.0 per cent) and traveller accommodations (down 25.4 per cent) further dropped in August, both weighing heavily on CPI growth last month.
  • As we expected, businesses have started to transfer some of the extra costs related to health and safety measures to consumers through price increases. For instance, prices for personal care services rose 7.2 per cent in August compared to a year-ago. In the coming months, cost-push price hikes are expected. Moreover, it is interesting to note that the price of jewelry skyrocketed (up 9.9 per cent monthly) in August, resulting from record high gold prices amid economic uncertainties.
  • The average of the Bank of Canada’s three measures of core inflation inched up 1.7 per cent in August, moving closer to the Bank’s 2.0 target.
  • Overall, August’s 0.1 inflation reflects weak consumer demand and suppressed oil prices. Out of the eight major components of the CPI basket, prices for clothing, transportation and recreation were lower than their level a year ago. Nevertheless, we expect more businesses to start passing additional COVID-19 safety-related costs down to consumers. This will continue to be a source of upward pressures on prices in the near term.

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Anna Feng

Anna Feng

Economist

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