Annual inflation rose to four per cent in August, Statistics Canada said Tuesday, a jump of 0.7 percentage points from July.
Gas prices pushed inflation higher last month, with costs of regular gasoline up 4.6 per cent from July, the agency said. Prices at the pumps rose year-over-year for the first time in August since January 2023.
Statistics Canada attributed some of the inflation at the pumps to the base-year effect — the impact of unfavourable year-over-year trends — as gas prices rose last month but were decelerating from last summer’s peaks in August 2022.
Economists had expected an increase in inflation thanks largely to the higher gas prices, though the magnitude of the jump beat the consensus estimates.
StatCan also said shelter prices rose six per cent year-over-year and were another significant fuel for inflation in August.
While the Bank of Canada says its interest rate hikes are working to tamp down price pressures, those higher borrowing costs also mean Canadians were again paying more on their mortgages in August.
Rents, too, were driven up in the month as StatCan noted higher interest rates put “barriers” on those looking to enter the housing market, increasing competition for rental units.
Canadian travellers were meanwhile finding discounts in August, with monthly slowdowns in prices for travel tours and air transportation following July’s travel peak.
Modest relief in grocery prices
There was some relief at the grocery store in August as well, with prices down 0.4 per cent on a monthly basis. Prices for food bought from stores were up 6.9 per cent annually, down from 8.5 per cent in July.
Prices for fresh fruit, chicken and cereal products grew at a slower pace last month than in July, according to StatCan, while costs for beef, coffee and tea and sugar and confectionaries accelerated.
Signs of progress on the food inflation front come a day after the Liberal government met with the heads of Canada’s biggest grocers to come up with a plan to “stabilize food prices.”
Few details of concrete commitments have emerged from Monday’s closed door meeting between Ottawa and the grocery execs, though Industry Minister Francois-Philippe Champagne said the grocers committed to “support” the federal government’s efforts to address rising food costs.
Champagne told reporters ahead of the Liberal cabinet meeting on Tuesday that the next step in the government’s plan might be to “go after the large manufacturers” in the food supply chain and teased that such a move could require international cooperation with his European counterparts.
NDP Leader Jagmeet Singh criticized Champagne’s approach on Tuesday, calling it “frankly ridiculous” that the government asked grocers to come up with their own plans to address price hikes.
“Sounds like a lot of nothing to me,” Singh told reporters ahead of question period on Tuesday. He called for a plan to not just stabilize prices, but to lower them, after years of rising food costs outpacing the headline inflation rate.
With domestic price growth now higher than inflation rates seen in the U.S. and Japan, Conservative Party Leader Pierre Poilievre on Tuesday called inflation a “made-in-Canada” problem and blamed price growth on the Trudeau government’s spending plans.
Bank of Canada in tough spot: economists
August’s consumer price index figures mark the second consecutive month inflation has accelerated in Canada.
Canada’s annual inflation rate fell to 2.8 per cent on an annualized basis in June, entering the Bank of Canada’s target range of one to three per cent for the first time since March 2021. However, the pace picked up in July to 3.3 per cent.
The Bank of Canada kept its key interest target on hold at five per cent earlier this month, but noted it was ready to raise rates if needed.
Bank of Canada governor Tiff Macklem said in a speech late last month that the central bank was expecting inflation to rise in the months ahead.
Deputy governor Sharon Kozicki echoed that sentiment Tuesday following the inflation data update.
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“Ups and downs of the size we’ve seen in the past couple of months are not that unusual,” Kozicki said in a speech at the University of Regina in Saskatchewan.
“(They) are one reason why we look at measures of core inflation — which exclude components with more volatile price movements — to get a sense of what underlying inflation is.”
But StatCan’s core inflation metrics also accelerated in August.
Kozicki said Tuesday that underlying inflation “is still well above the level that would be consistent with achieving” the central bank’s two per cent inflation target.
After the August inflation data release, Reuters said that money markets raised bets for a rate hike after the next policy meeting on Oct. 25, seeing a 42 per cent chance of an increase compared with 23 per cent before.
Economists commenting on the inflation figures Tuesday said the Bank of Canada finds itself in a tough position.
BMO chief economist Doug Porter told Global News on Tuesday that the central bank will be “disappointed” in this CPI report, but he added monetary policymakers might wait for more data before jumping again.
“We’re still leaning to the view that we think the Bank of Canada will grit their teeth and and not hike again,” he said. “But the chances of another rate hike have gone up because of this.”
Porter thinks core inflation will start to ease to below three per cent next year, but that the path back down to two per cent inflation will be a long one.
“It’s probably going to stay uncomfortably high for longer than many of us would have hoped for,” he said.
While signs of slowing in Canada’s economy and rises in the national unemployment rate are among the signs of easing inflation pressures, RBC assistant chief economist Nathan Janzen said the jump in headline inflation is a “significant step away” from the central bank’s inflation target.
“We expect the economic backdrop will continue to soften, and don’t look for more interest rate hikes this year,” he wrote in a note on Tuesday.
“But the central bank won’t hesitate to hike interest rates further if inflation pressures don’t show signs of easing.”
CIBC senior economist Andrew Grantham said in a note that inflation is expected to continue to accelerate in the months ahead and calls for an overall rate of 3.8 per cent in the third quarter, half a percentage point higher than the Bank of Canada’s most recent forecasts.
But like Janzen and Porter, Grantham said he expects the central bank will remain on hold for the current tightening cycle if consumer spending slows down and Canada’s unemployment rate continues to tick up.
— with files from Global News’ Nivrita Ganguly, The Canadian Press, Reuters