Canada’s inflation rate cools down to 3.8% in September

Canada’s annual inflation rate eased to 3.8% in September, down from 4.0% in August, according to Statistics Canada. The decline was mainly due to lower price increases for gasoline and food.

Gasoline prices rose less than in August

The price of gasoline increased by 32.8% year-over-year in September, compared to 43.3% in August. This was the main factor that contributed to the slowdown in the overall inflation rate. Gasoline prices were affected by lower demand and higher supply, as well as fluctuations in the global oil market.

Canada’s inflation rate cools down to 3.8% in September
Canada’s inflation rate cools down to 3.8% in September

Statistics Canada also noted that the gasoline index was still 9.4% higher than its pre-pandemic level in February 2020. The agency uses February 2020 as a reference point to measure the impact of the COVID-19 pandemic on consumer prices.

Food prices also moderated in September

Another factor that helped ease the inflation pressure was food prices, which rose by 2.7% year-over-year in September, down from 3.2% in August. The slowdown was mainly driven by lower price increases for meat, fresh vegetables, and dairy products.

Statistics Canada said that food prices were influenced by various factors, such as weather conditions, supply chain disruptions, and consumer demand. The agency also pointed out that food prices were still 5.9% higher than their pre-pandemic level in February 2020.

Core inflation measures remained elevated

The Bank of Canada’s three core inflation measures, which exclude more volatile items such as energy and food, remained elevated in September. The common measure, which tracks the underlying trend of inflation, rose to 4.8% year-over-year, up from 4.7% in August. The median measure, which shows the median inflation rate across various categories, stayed at 4.1%. The trimmed measure, which excludes extreme price changes, edged down to 3.9%, from 4.0%.

The Bank of Canada has a target range of 1% to 3% for annual inflation, with a midpoint of 2%. The central bank has said that it expects inflation to remain above 3% until the end of this year, before easing back to around 2% in 2024. The bank has also maintained its key interest rate at a record low of 0.25%, and has signaled that it will not raise it until the second half of 2023.

Implications for the economy and consumers

The lower-than-expected inflation rate in September may provide some relief for the Canadian economy and consumers, who have been facing rising costs of living amid the pandemic recovery. However, some analysts have warned that inflation may not be transitory, and that it may pose a risk to the economic outlook and the purchasing power of households.

Some of the factors that could keep inflation high include supply chain bottlenecks, labor shortages, rising wages, higher taxes, and stronger consumer demand. Moreover, some economists have suggested that the Bank of Canada may need to tighten its monetary policy sooner than expected, if inflation continues to exceed its target range.

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