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September’s Unyielding Core CPI Figures Making Canadians Sore

  • In September, the Consumer Price Index (CPI) rose by 6.9 per cent (y/y). This was lower than August’s 7.0 (y/y) per cent increase.
  • Gasoline prices fell by 7.4 per cent (m/m) but were 13.2 per cent higher than a year ago. Year-over-year, food prices increased in stores (+11.4 per cent) and restaurants (+7.5 per cent).
  • Excluding food and energy, the CPI was up by 5.4 per cent in September (y/y), higher than the 5.3 per cent increase (y/y) in August. Higher prices in several shelter, food, and transportation subcategories remained key contributors to overall CPI growth.
  • On a seasonally adjusted monthly basis, the CPI rose by 0.4 per cent in September, which was higher than the 0.1 per cent gain in August.
  • The average of the Bank of Canada’s three core inflation measures stayed flat at 5.3 per cent in September (the same as in August). CPI-median remained at 4.7 per cent, CPI-common stayed at 6.0 per cent, and CPI-trim was steady at 5.2 per cent.

Key Insights

This period of elevated inflation won’t be over ‘til it’s over. Headline inflation is falling, and energy prices are owed much of the credit for knocking the cap off. Supply chain pressures are also easing. The global picture is improving, but domestic factors are holding up the modest pace of inflation’s descent. Core inflation refuses to budge, while the all-items excluding food and energy index bumped up slightly in September. While home prices (and homeowners’ replacement costs) are falling, mortgage interest costs are surging higher. On balance, shelter prices increased in September (y/y) and will fall only gradually. Price growth for services like recreation and tourism will slowly taper as purchasing power falls and consumer demand eases.

Price growth is often felt most viscerally at the grocery store. Food has a comparatively modest weighting in Canada’s CPI, but food price growth can feed perceptions and expectations of future inflation. Food prices in stores and restaurants continued to rise into September (y/y). But this may be the peak for high food price growth. Commodity prices have fallen dramatically in recent months. Loblaws, Canada’s largest grocer, has also frozen prices for its in-house No Name goods. But the Canadian dollar has appreciated less than has been typical amid rising interest rates. Currency weakness makes imports more expensive, which could feed through to the prices paid by Canadians at the till.

Turbulent economic periods often unleash “unknown unknowns” that have been overlooked by the economics profession. The current inflationary bout has also shaken some key tools used to assess inflation and inform monetary policy. One of the Bank of Canada’s core inflation gauges, CPI-common, has undergone extensive revisions over the past year. High inflation, it seems, has thrown the assumptions behind the model-based CPI-common into question. As we near another Bank of Canada interest rate decision on October 26, monetary policymakers have lost a key indicator. The field of economics expands its understanding of the economy with every passing crisis. Undoubtedly, the turmoil and recovery of the last two years will lead to adjustments in how economists understand and predict inflation. In this case, unfortunately, our improved understanding has come at the cost of lowering purchasing power for millions of Canadians and billions of others around the world.