The annual rate of inflation slowed to 7.0 per cent in August as prices continued to fall at the gas pumps, Statistics Canada reported Tuesday.
While gas prices were 22 per cent higher year-over-year in August they were down 9.6 per cent on a monthly basis, according to the latest Consumer Price Index (CPI) release. This marks the largest monthly decline since April 2020.
The country’s year-over-year inflation rate had previously slowed in July to 7.6 per cent, also largely due to lower gas prices.
But August’s figures saw relief beyond the pumps: annual inflation excluding gas prices was 6.3 per cent for the month, down from 6.6 per cent in July. That’s the first slowdown in CPI excluding gas since June 2021.
Statistics Canada reported that shelter prices were up 6.6 per cent in August, representing a slowdown in price growth.
The August inflation print was lower than most economists expected; a Reuters poll of analysts last week called for annual CPI to rise 7.3 per cent year-over-year.
Average hourly wages, meanwhile, were up 5.4 per cent year-over-year in August, still lagging inflation.
Rampant food inflation changing how Canadians are shopping
Tuesday’s report wasn’t all good news — grocery prices were up 10.8 per cent over August 2021, the fastest pace recorded since 1981. Last month saw big year-over-year jumps in prices for baked goods (up 15.4 per cent); condiments, spice and vinegars (up 17.2 per cent); non-alcoholic beverages (up 14.1 per cent); and fresh fruit (up 13.2 per cent).
The agency cited extreme weather, higher input costs, disrupted global supply chains and Russia’s war in Ukraine as factors driving food prices higher.
A survey released Tuesday from the Agri-Food Analytics Lab at Dalhousie University shows around three-quarters of Canadians have been changing how they do their groceries in some way as high costs eat away at their budgets.
The poll, conducted by Caddle, showed roughly 24 per cent of respondents are cutting back the amount of food they’re buying due to high prices. That figure was even higher among women respondents, at 29.6 per cent.
From the 5,000 Canadians surveyed, 7.1 per cent said they are skipping meals or snacks because of food inflation. Some 6.6 per cent said they are more often paying for groceries on their credit cards without knowing when they’ll be able to pay it back.
Sylvain Charlebois, director of the Agri-Food Analytics Lab, told Global News in an interview that the survey shows the “dark side of food inflation.”
“Our latest report that shows that a lot of people out there are struggling, like really struggling,” he says.
Forty per cent meanwhile said they were trying to waste less food amid high inflation, 33 per cent said they were paying for groceries using rewards points more often and 18 per cent said they’re buying food in bulk more often.
When food inflation topped 10 per cent back in the 1980s, the higher prices only lasted a few months and didn’t see Canadians adopt new shopping habits en masse, Charlebois says.
He points to the steps taken to reduce food waste as one example of the shifting mindsets around the costs of groceries.
“People are actually linking food waste, what they put in their bin, with money wasted. And that’s a good sign,” he says.
With food inflation proving stickier today than in the 1980s, Charlebois expects even more households will be pushed to make long-term changes for how they shop.
“We’re not out of the woods yet. So we are expecting more Canadians to to adopt new habits as we try to get out of this food inflation dilemma,” he says.
What does this mean for the Bank of Canada's rate hikes?
So-called “core inflation” — a metric that economists use to track the underlying price pressures driving inflation — also saw a modicum of relief in August.
The average of the three figures Statistics Canada uses to track core inflation dipped slightly to 5.2 per cent last month after hitting an all-time high in July.
Economists who spoke to Global News on Monday said core inflation is one of the key measures the Bank of Canada will watch to determine how high interest rates need to go. The central bank has so far raised interest rates 300 basis points in 2022, putting its benchmark rate at 3.25 per cent today.
CIBC senior economist Andrew Grantham said in a note Tuesday morning that the modest let up in inflation does not mean the central bank is in the clear yet.
“Even after today’s deceleration, the annual rate of inflation remains well above the Bank of Canada’s target and as such further interest rate hikes are still in the cards,” he wrote.
Money markets bets on a 50-basis-point hike at the October rate decision eased slightly following the data, Reuters reported Tuesday, though the larger move was still favoured over a standard quarter-percentage-point increase.
Benjamin Reitzes, BMO’s managing director of Canadian rates and macro strategist, wrote Tuesday that while the decline in both headline and core inflation is a “clear positive,” the report did not show much relief in the breadth of price growth.
He added that Tuesday’s figures are “as good of an inflation report we can hope for” — especially given a high inflation print out of the U.S. last week — that will “limit” how much higher the market expects interest rates to go.
“The path to tamer inflation is going to be long and winding, and this is a step in that direction,” Reitzes said.
TD Bank’s managing director and senior economist Leslie Preston also said there’s a “long journey ahead” in her note Tuesday morning. She said that the Bank of Canada will still be on course for a rate hike in October, with the policy rate expected to hit four per cent by the end of the year.
— with files from Global News’s Anne Gaviola, the Canadian Press, Reuters
Comments