In a recent reveal, Canada’s rate of inflation has seen a slight dip to 3.8 per cent last month, as the economy experienced relief from escalating price pressures. This turn of events anticipates the Bank of Canada maintaining its key interest rate with consistency in the coming week, as predicted by economists.
Tuesday saw Statistics Canada roll out its current consumer price index report, indicating a slowdown in inflation in September, following its ascension to a four per cent high in August. This turn of events has been deemed an agreeable revelation by economists.
According to the federal agency, a year-over-year increase of 5.8 per cent was charted for grocery prices in September, exhibiting a reduction when compared with a 6.9 per cent surge in August.
Extracts from the report highlight that the primary triggers for the mounting annual inflation last month comprised mortgage interest costs, rent, food acquired from restaurants, gasoline, and electricity. Conversely, depreciation in prices for services such as telephone, natural gas, air transportation, childcare, housekeeping, along with furniture contributed to the pullback in inflation.
Economists studying the latest inflation data have recognized this as reaffirming evidence for allowing the Bank of Canada to stay in a holding pattern, anticipating a further dip in inflation rates. A decision on the rate is expected from the Bank on October 25th.
Benjamin Reitzes, BMO’s Director of Canadian rates and macro strategist commented on the data, “This report will give the Bank of Canada cause to relax, taking away the pressure as they approach next week’s meeting. Ideally, they should hold steady on their decision.”
Sitting at five per cent, the central bank’s chief interest rate is at its highest since 2001. Observing core inflation metrics that exclude price volatility will be a focus of the Bank of Canada for gauging the trajectory of inflation.
While these freshly-released inflation statistics could offer the central bank some relief, before stepping back entirely, the Bank would expect to observe inflation retreating towards the two per cent target, Reitzes explained. “While this is just one report, and we need more information for them to ease their inflation concerns, this is certainly a step in the right direction,” he stated.
Since March 2022, the central bank has countered escalating inflation with higher interest rates. The inflation rate has not yet attained its two per cent objective, but the bank remains cautious to avoid undue rate hikes in light of the economic strain from heightened borrowing expenses.
With economic expansion significantly easing since the previous year, and the formerly robust labour market cooling post COVID-19 lockdowns, the bank’s latest business outlook survey also illustrated softening business sentiment. As the effects of previous rate hikes permeate the economy, economic forecasters expect such softness to continue.
RBC economist Claire Fan commented on this state of affairs stating, “The delayed aftereffect of the to-date interest rate hikes will keep exerting pressure on consumer expenditure as debt payments increase with respect to household incomes. This will pose challenges for businesses to uplift prices as speedily and frequently.”
