MNI DATA IMPACT: Canada CPI Well Below BOC's Q3 Estimate

Canada's annual inflation rate was 0.1% for the second month in a row in August, lagging investor expectations and likely leaving it below the central bank's 0.4% third-quarter forecast.

Gasoline prices fell 11% from a year ago, and the pace of airfare declines almost doubled from July to 16%, Statistics Canada reported Wednesday from Ottawa. The MNI median economist estimate was for overall prices to rise 0.4% in August from a year ago.

Bank of Canada Governor Tiff Macklem is pledging to hold a record low 0.25% policy rate until inflation sustainably returns to a 2% target, and the central bank's forecasts show that won't happen before 2023. He also pointed to the fact that all three of the BOC's core inflation measures were below 2% as a sign the economy has major slack. In August those measures averaged 1.7%.

"With little in the way of inflation, the Bank of Canada has no reason to change its communication that interest rates will remain at low for an extended period of time in order to support a stronger economic recovery," TD Bank senior economist James Marple wrote in a research note.

PRICIER HAIRCUTS

Consumer prices fell 0.1% on a monthly basis in August, lagging the MNI economist consensus for a gain of 0.1%.

There were a few signs of potential future momentum. Monthly prices excluding gasoline rose 0.6% in August, following a July gain of 0.7%. Prices for personal care services like haircuts rose 7.2% from a year ago as shopkeepers passed on higher costs of new equipment to curb the spread of Covid-19.