By Promit Mukherjee
OTTAWA (Reuters) – Canada’s annual inflation rate reached the central bank’s target in August at it cooled to 2%, its lowest level since February 2021, data showed on Tuesday.
The closely watched core price measures also cooled to their lowest level in 40 months while month-on-month consumer prices deflated by 0.2%, Statistics Canada said.
Analysts polled by Reuters had forecast the consumer price index (CPI) to cool to 2.1% from 2.5% in July on an annual basis, and expected it to be unchanged on a monthly basis.
The easing of price pressures was primarily helped by a drop in prices of gasoline, telephone services and clothing and footwear, while shelter costs – mortgage and rents – continued to cool at a tepid pace as rents continued their relentless rise.
At the Bank of Canada’s monetary policy decision announcement earlier this month Governor Tiff Macklem had said the bank has to increasingly guard against the risk that inflation could fall below its target as economic growth was weak.
The BoC has reduced its key policy rate three times in a row from June, cutting by a cumulative 75 basis point to 4.25%.
Money markets are fully pricing in 25 basis point rate cuts twice in as many monetary policy meetings remaining in the year, but economists say that chances of a jumbo 50 basis point cut this year is gradually building up.
The BoC had predicted annual inflation to be at 2.6% this year and fall to 2.4% next year before coming down to its mid-point of the target range of 1-3% in 2026.
CPI-median – or the price change located in the middle of the CPI basket – slowed to 2.3% in August from 2.4% in July annually. CPI-trim – which excludes the most and the least volatile price items – cooled to 2.4% from 2.7%.
Gasoline prices, which contributed the most to the fall in inflation, fell by 5.1% and clothing and footwear fell by 4.4%.
Shelter costs, which accounts for close to 30% of the CPI basket, rose by 5.2% in August, from 5.7% in July, primarily led by rents which rose by 8.9% from 8.5% in July.
(Reporting by Promit Mukherjee; Editing by Dale Smith)