• Headline CPI grew 0.1% year-over-year in August
  • Ex-food and energy prices grew 0.5%, unchanged from July
  • Underlying price trends firmed slightly but still soft

Headline inflation was subdued again in August, growing just 0.1% year-over-year after edging lower to that same pace in July. Growth in food prices continued to outpace other components, albeit at a slower pace, up 1.8% year-over-year versus 2.2% in July. Energy prices fell on a month-over-month basis in August and remained sharply lower from a year ago (-6.3%) as gasoline prices edged lower, that’s after rebounding for 3 consecutive months since its April trough. Outside food and energy components, growth in prices remained at 0.5% year-over-year, matching July’s reading.

Overall CPI growth is still being weighed down by very subdued demand for services. Services price growth held at July’s record-low 0.5% year-over-year rate in August. Prices remained particularly soft for travel-related services (like airfares) as COVID-19 disrupted normal seasonal travel patterns. By our count, travel services and inter-city transportation, together with gasoline, combined to subtract nearly a full percentage of price growth in August over 2019.

In the meantime, the Bank of Canada’s preferred core measures (“trim”, “median”, and “common”) held up better than expected, averaging 1.7% in August, up a tenth from the July reading but still lower than the central bank’s 2% target. To-date, labour markets are still weak and the economy is still running well-below capacity levels, and that should keep underlying inflation trends in check – leaving policymakers comfortable keeping interest rates at exceptionally low levels.

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