MNI: Canada August CPI Quickens To Double The BOC's Target

Canadian inflation quickened more than than expected to 4% in August from a year ago on higher gasoline prices and rents, doubling the central bank's target after officials held interest rates earlier this month saying they could hike again if needed to restore price stability. 

Economists predicted a 3.8% reading following July's 3.3% pace, and the monthly price gain of 0.4% also beat expectations of 0.2% in Statistics Canada's report Tuesday from Ottawa. Core measures closely tracked by the Bank of Canada also quickened, with the "median" index moving to 4.1% after three months at 3.9%, and the "trim" index gaining for the first time since October to 3.9% from 3.6%.

Gasoline prices rose 0.8% from a year ago, the first such increase since January, following a previous drop of 13%. Even excluding gasoline inflation was elevated, coming in at 4.1% for a second month, StatsCan said. 

Shelter prices that have outraged voters and shaken Justin Trudeau's Liberal government climbed 6% in August compared with 5.1% in July, led by rental costs in the province of Newfoundland jumping 8.4%. Mortgage costs also kept advancing at a record pace of 31%, while there was some relief in grocery inflation to 6.9% from 8.5%.

Bank of Canada Governor Tiff Macklem has said he anticipated gasoline prices would boost inflation in the near term, but the latest headline figure is well beyond the staff's July estimate for consumer price gains to average 3.3% in the third quarter. Most economists predict the Bank will hold rates again next month with global growth fading amid a slowdown in China while the Fed and ECB appear to be near the end of their hiking cycles. 

Canada’s inflation rate is now higher than the U.S. pace of 3.7% while slower than the eurozone's 5.3% and 6.8% in the UK.

The Bank of Canada sets interest rates to keep inflation in the middle of a 1% to 3% target band and officials say a strong economy will keep CPI from returning to 2% until the middle of 2025.

Governing Council has hiked rates 10 times as inflation reached 8.1% last year before pausing early this year and returning to hike in June and July as the economy kept moving ahead. The pause earlier this month came with a hawkish statement saying officials can move again if inflation remains sticky. The key lending rate of 5% is the highest since 2001 when it reached 5.75%. Officials have also said the effect of its past moves including the shock 100bp hike last July, may just be slow in coming and they are balancing risks of over- and under-tightening.