MNI BRIEF: Canada Aug Inflation Slows More Than Forecast to 7%

Canada's inflation rate slowed more than economists predicted in August as gasoline prices moderated while core prices slowed as higher interest rates hit the housing market, rare good news for a central bank predicting CPI will remain above target until the end of 2024.

The consumer price index advanced 7% in August from a year earlier, slowing from 7.6% in July and June's four-decade high of 8.1%. Economists predicted a 7.2% pace. Prices also declined 0.3% on a one-month basis, Statistics Canada said Tuesday, more than the expected 0.1% fall and the biggest decline since early in the Covid pandemic. 

The average of three core inflation indexes tracked by the Bank of Canada slowed to 5.2% from 5.4%. Some economists saw those measures continuing to rise, pressuring the BOC for more aggressive rate hikes even as headline prices slowed.

Gasoline prices fell 9.6% in August from July, curbing the 12-month advance to 22% from 36%. Excluding gas, the CPI slowed to 6.3% from 6.6%, the first moderation in more than a year.  

Households are still facing some eye-popping price gains at a time where officials worry that expectations of rapid inflation will become entrenched. Grocery costs surged 11%, the most since 1981 including a 15% rise in baked goods.

The Bank of Canada was seen hiking another half point to 3.75% at its October meeting with Senior Deputy Carolyn Rogers highlighting upside risk even as CPI may have peaked. Deputy Paul Beaudry may update the Bank's views in a speech this afternoon. 

Other reports have shown a mix of slowing economic growth and solid price pressure. Employment declined in August while average wages climbed 5.4% from a year ago, second-quarter GDP included the biggest economy-wide rise in prices since 1974 and a flash July GDP indicator showed a 0.1% decline.