August CPI Growth Decelerated to Slowest Pace since February 2021

Key Insights

The growth of Canada’s CPI reached 2.0 per cent year-over-year in August, hitting the Bank of Canada’s target. The milestone highlights the progress made in bringing the pace of price growth down after it peaked at 8.1 per cent (y/y) in June 2022. Lower gasoline prices were the primary driver of the deceleration in August. The all-items CPI excluding gasoline rose by a slightly swifter 2.2 per cent (y/y). Goods prices also fell outright by 0.7 per cent (y/y). Notable sources of upward pressure will likely see the pace of price growth pick up before sustainably hovering around the Bank of Canada’s target. The elevated pace of shelter price growth remains a concern, and high wage growth rates are still out of step with productivity gains which could add inflationary pressure. These forces are subsiding gradually, but they are not yet in line with historical norms.

Broad CPI trends bode positively for further monetary policy easing. Critically, the average of the Bank of Canada’s two preferred core inflation measures ticked down again in August. Several CPI sub-measures have also trended at or below the central bank’s 2 per cent inflation target for several months. For example, the all-items CPI excluding shelter was 0.5 per cent (y/y) in August and has averaged only 1.3 per cent this year. Inflationary pressures have waned considerably, but shelter costs are still growing swiftly. Yet, mortgage interest costs are related to the Bank of Canada’s policy actions. The Bank has acknowledged it can look through shelter price growth if it’s one of the only components holding back inflation’s broader deceleration. Even so, the pace of shelter price growth must continue to fall to reach the Bank’s inflation target sustainably. In that respect, the deceleration of shelter prices to 5.3 per cent (y/y) in August from 5.7 per cent in July is encouraging.