Inflation cooled to 3.8 per cent nationally last month, Statistics Canada said Tuesday, down from 4.0 per cent in August and snapping a streak of two consecutive monthly accelerations.
The annual rate of inflation saw a “broad-based” slowdown in September amid signs of continuing relief at the grocery store, the agency said.
StatCan said Canadians saw prices at the grocery store rise 5.8 per cent in September, cooling from the 6.9 per cent increase in August.
Price growth for meat, dairy products, vegetables and coffee and tea all decelerated month-to-month, though edible fats and oils, bakery products, fish and fresh fruit saw costs rise quicker.
Mike von Massow, a food economist with the University of Guelph, told Global News on Tuesday that the easing in price growth at the grocery store was largely foreseen — and it’s a trend he expects to continue.
Months of higher grocery price hikes from last year are falling out of the annual inflation comparison, he notes, and food costs tend to cool in the late summer and early fall months.
“There’s still room for things to upset the apple cart, but overall, I’m optimistic that we will continue to see food inflation come down and perhaps even see one more month of price decreases, and that that will make it a little easier we get into the holiday season,” von Massow said.
There are still risks that could drive prices up on individual baskets of goods, such as concerns about a repeat of last year’s disease in California crops such as lettuce, von Massow noted, but those impacts won’t hit consumers as hard as the “perfect storm” Canadians faced at the grocery store this past year.
One of the most significant drivers of food inflation has been Russia’s invasion of Ukraine — a region known colloquially as the world’s bread basket — which disrupted flows of goods and drove up prices for wheat and other commodities.
The freshly unfolding conflict in Israel and Gaza is unlikely to have as much impact on global food supply chains, von Massow said, with North American food suppliers getting limited greenhouse products from the region. But he said there remains a risk that if the conflict escalates and spreads to include additional Middle Eastern powers, that more parts of the supply chain could be impacted.
“That’s not to say it’s not a significant event, but it’s not something that we should see dramatic impacts in North American grocery stores,” von Massow said.
Higher costs for mortgages and rents were the main factors fuelling inflation in the September, StatCan said.
At the fuel pumps, gasoline prices rose 7.5 per cent year-over-year, but they declined slightly on a monthly basis, according to the agency.
Canadians also saw outright declines in the cost of airfare in the month, with prices down 21.1 per cent year-over-year. StatCan noted the price drop coincided with a gradual increase in flights on offer from airlines over the past year.
Canadians also saw prices drop annually on durable goods including furniture and appliances. New passenger vehicles saw prices grow at a slower rate in September, which StatCan attributed to better stock for new cars in the market.
What does this mean for the Bank of Canada?
The Bank of Canada is set to make another interest rate decision on Oct. 25. with the inflation print marking one of the final data releases for policymakers before next week’s rate call.
Inflation has proved stubborn in recent months, rising in July and August after hitting a low of 2.8 per cent in June. The Bank of Canada has expressed concern that despite progress to date on taming price pressures, annual inflation could get stuck above the central bank’s two per cent target.
The central bank’s closely watched metrics of core inflations cooled slightly last month, StatCan noted.
RBC economist Claire Fan called the September inflation report a “step in the right direction” for the Bank of Canada’s efforts to restore price stability.
The central bank has rapidly raised its benchmark interest rate by 4.75 percentage points since March 2022, but economists generally say it takes between a year and 18 months for the economy to fully absorb the impact of higher rates.
Fan said in a note to clients Tuesday that the lagged effect of higher rates will continue to put downward pressure on inflation, as consumers have to put more money aside to pay down debt and businesses are forced to rein in price hikes to stay competitive.
“With more easing in inflation readings expected in the months ahead, we expect the Bank of Canada to stay on pause through the rest of the year,” she wrote.
A pair of Bank of Canada surveys released on Monday also show that higher interest rates are starting to bite on businesses and consumers alike, pushing firms to scale down their sales forecasts in the year ahead.
Gross domestic product data also shows the Canadian economy has effectively stalled in recent months.
Benjamin Reitzes, BMO’s managing director of rates and macro strategist, said in a note on Tuesday that the cooling in the economy and signs of weakness in the Bank of Canada’s own surveys indicate that the central bank can remain on hold for the rest of this cycle and let the slowing trends play out to tamp down inflation.
“Given that inflation is the most lagging of indicators, and the economy is clearly weakening, we’re likely to see ongoing disinflationary pressure,” he said.
“There’s no need for further rate hikes in Canada.”
Money markets trimmed bets for a rate hike next week after the inflation data came out. They now see a 23 per cent chance for a rate increase next week, down from 43 per cent before the figures, according to Reuters.
Federal government doesn't get 'credit' for inflation cooling: economist
Chrystia Freeland, Canada’s finance minister and deputy prime minister, said that Canadians struggling to keep up with the rising cost of living should be encouraged by progress on the inflation front.
“The trend is in the right direction, and that is good news for Canadians,” she told reporters on Tuesday. Freeland announced plans to push banks to expand offerings for low- and no-cost bank accounts to make financial services more affordable.
Industry Minister Francois-Philippe Champagne, speaking alongside Freeland on Tuesday, acknowledged that efforts to bring inflation back under control will take “weeks” or “months.”
“It’s not as if there’s an on-off switch here to inflation. We can’t just stabilize prices overnight,” he said in French.
The Liberal government has put grocery affordability at the top of its agenda in the House’s fall sitting, with Champagne putting pressure on grocers to come up with plans to stabilize food prices in recent weeks.
Heading into the Thanksgiving weekend, Champagne said he had secured guarantees from big grocers to implement price freezes and other plans to help control food prices, but there’s been little confirmation from the grocery chains themselves about any such actions.
The easing in food inflation can’t be attributed to the federal government ratcheting up pressure on big grocers, food economist von Massow told Global News. For one, much of the action has come in October, while the latest inflation data references September’s prices.
It’s also not clear that grocers themselves are a significant cause of food inflation, he noted, despite stores taking heat from consumers and politicians for raking in record profits amid the current inflationary period.
But von Massow also argued that with food inflation set to cool from last year’s highs, Ottawa is well-positioned to see grocery prices ease without having to take significant action.
“Some of these decreases we’ve seen in recent months are serendipitous for the federal government because it’ll ease some of the pressure,” he said. “But I don’t think the government gets a lot of credit.”
Champagne has pointed to the Liberals’ proposed Bill C-56, which includes new powers for the Competition Bureau to probe businesses and other measures to promote competition in the grocery sector, as a long-term strategy to limit inflation facing Canadians.
Von Massow said Tuesday that giving additional investigation powers to the Competition Bureau could help to provide “some clarity” into the role grocers play in food inflation.
— with files from Reuters