- The slowing in year-over-year price growth to a 2.0% rate - the lowest since February 2021, and right in line with the Bank of Canada’s (BoC's) 2% inflation target - was largely driven by lower gasoline (and oil) prices but broader underlying inflation pressures also showed further signs of easing.
- The BoC's preferred median and trim measures both posted 'normal' looking 0.2% month-over-month increases that pushed the closely watched three-month average annualized growth rate for the pair down to 2.4% from 2.8% on average in July.
- Trim services ex-shelter prices (sometimes called BoC supercore) rose 0.2% month-over-month by our count, with the three-month average annualized growth rate slowing to 2.5% in August from 3.0% in July.
- Shelter costs are still one of the remaining pockets where prices are rising rapidly. Home rent prices were up 8.9% from a year ago in August. Mortgage interest cost growth has started to slow but are still 18.8% above year-ago levels in August. Those two price components accounted for ~two-thirds of the total year-over-year CPI increase in August by our count. Higher shelter costs (among the most non-discretionary of non-discretionary purchases) will continue to cut into household purchasing power for other products.
- By our count, 46% of the CPI basket was growing at an above 3% rate over the last three months (month-over-month annualized rates), down from 49% in July.
- Food price growth held steady at a 2.7% year-over-year rate (unchanged from July) and energy prices fell 4.7% from a year ago on lower gasoline (and oil) prices.
Bottom Line: Broader inflation pressures look to be back around the 2% inflation target, and interest rates are still at levels high enough to restrict economic growth and push price growth lower. Per-capita GDP already down in seven of the last eight quarters and the unemployment rate up more than one percent from a year ago. Against that backdrop, the path to further BoC interest rate cuts is clear. We continue to expect a gradual rate-cutting path (25 basis points per meeting) down to a 3% overnight rate with risks tilted to potentially larger cuts if the economy softens significantly further.
Lower oil and gasoline prices pushed headline inflation down, from 2.5% year-over-year in July to 2.0%.
The Bank of Canada’s preferred core measures ticked lower, with rates slightly above the 2% target on annualized three-month rolling average basis.
The share of CPI basket with high inflation rate (>3%) continued to decrease.
Mortgage interest costs are expected to slow further as rate cuts take effect, but rent CPI is not coming down yet.
See the archived editions of the RBC Canadian Inflation Watch here.
This article was originally published by RBC Economics. For related content, visit rbc.com/economics
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