Consumer price inflation edged down in September to 3.8% on a year-on-year (y/y) basis, down from 4.0% in August. In month-on-month terms, prices fell 0.1%. This month’s print registered below consensus expectations.
Food prices continued to track lower, rising 5.8% y/y, led by slowdowns in meat and dairy products. The food component of the Consumer Price Index (CPI) basket has now been overtaken by shelter (+6.0%) as the fastest rising components on an annual basis.
Shelter inflation held flat in September at 6.0% y/y. An increase in rented accommodation (up to 7.1% from 6.4%), was offset by deceleration in owned accommodation (falling to 6.3% from 6.4%).
Gasoline prices retreated by 1.3% on a monthly basis, reversing the large 4.7% gain last month. Year-over-year, gasoline prices are up 7.5% at the national level in September, following a 0.8% increase in August. Notably, September’s strong annual price print is buoyed by a soft reference period last year.
The transportation basket rose to 3.2% y/y. The gain was moderated by a substantial decline in air transportation (-21.1%), as airlines increased flight offerings over the last twelve months.
Prices for the purchases of new passenger vehicles (1.7% y/y) helped slow the pace of durable goods price gains, up only 0.4% y/y in September compared to 1.4% y/y in August.
The Bank of Canada’s underlying inflation measures also took a step back in September. CPI-trim fell two-tenths to 3.7% y/y from 3.9% y/y in August and CPI-median dropped by three-tenths to 3.8% y/y from 4.1% y/y in August.
Inflation for core goods appears to be behind the deceleration in core inflation measures in September. Core goods inflation fell to 2.4% y/y from 2.9% in August.
Key Implications
Today’s inflation print is another small step towards tackling the last leg of the inflation battle. Core inflation measures, in particular, taking a step back are a welcome development after heating up for consecutive months. On a three-month annualized basis, the CPI-trim and median core measures average fell from 4.3% to 3.7%.
Markets have significantly reduced their pricing of the probability of an interest rate hike at next week’s meeting. Bond yields also slid by 8 basis points (bps) and 4 bps for the 2 and 10-year yield, respectively. With today’s inflation print, the BoC is now equipped with all relevant data before making their policy decision next week. Alongside other measures that have shown momentum is cooling in Canada’s economy, we see enough evidence for the BoC to stand on the sidelines next week, holding the policy rate at 5.00%.
 and 4 bps for the 2 and 10-year yield, respectively. With today's inflation print, the BoC is now equipped with all relevant data before making their policy decision next week. Alongside other measures that have shown momentum is cooling in Canada's economy, we see enough evidence for the BoC to stand on the sidelines next week, holding the policy rate at 5.00%.){kind=link}