The inflation rate stopped right on the Bank of Canada’s target in August, at 2%, its lowest since February 2021.
According to Statistics Canada, the deceleration is partly explained by the drop in the price of gasoline. Excluding gasoline, the Consumer Price Index (CPI) stood at 2.2%. The CPI was at 2.5% the previous month.
In Quebec, the inflation rate fell from 2.3% in July to 1.3% in August.
Mortgage interest costs were still a major driver of inflation in August, but their growth has been slowing for a year. Grocery prices rose slightly, from 2.1% in July to 2.4% in August.
Month-over-month, the CPI is down 0.2%. In addition to lower gasoline prices, lower clothing and footwear prices slowed inflation in August.
This is the first time since 1971 that a drop in clothing and footwear prices has been recorded in August, Statistics Canada points out. Traditionally, demand for these products is up due to the start of the school year and prices are on the rise.
This year, “retailers offered more and deeper discounts compared to August 2023 to stimulate consumer spending, in the context of a recent decline in demand,” Statistics Canada analyzes.
The Bank of Canada expects inflation to move both up and down in the coming months, but it is not concerned about a broad-based resurgence in prices. The core inflation measures it is particularly monitoring are holding within the central bank’s 1 to 3 per cent target.
The return to inflation targeting could accelerate interest rate cuts in Canada, especially as the economy feels the lagged effects of high interest rates. The Bank of Canada has already cut its key interest rate three times, from 5% to 4.25% in recent months.
Most economists expect anaemic growth in gross domestic product (GDP) this year, and a continued rise in the unemployment rate, which currently stands at 6.6%.