Canadian Consumer Price Index (September 2018)

James Marple, Senior Economist | 416-982-2557

Date Published: October 19, 2018

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Inflation slows to 2.2% in September as previous air transportation price surge reverses

  • Canadian consumer price inflation slowed to 2.2% in September, down from 2.8% in August and well below the consensus forecast for 2.7%. Adjusted for seasonal patterns, prices fell 0.1% month-on-month. 
  • The slowdown in inflation was led almost entirely by transportation prices, which eased to 3.9% (from 7.2% in August). Gas price growth eased to 12% (year-on-year) from 20% in August, but the biggest mover was air transportation, which went from 26.4% to 7.4%. Together, these two items took 0.5 percentage points from the headline reading. 
  • The Bank of Canada's core measures all edged lower by a 10th of a percentage point, with CPI-trim falling to 2.1% (from 2.2%), CPI-median to 2.0% (from 2.1%), and CPI-common to 1.9% (from 2.0%).

Key Implications

  • Inflation has been volatile over the past few months, but the signal beneath the noise is an underlying rate close to the Bank of Canada's 2.0% target. The relative stability of the Bank of Canada's core measures is consistent with an economy operating close to potential, but not ringing any alarm bells in terms of overheating.
  • Without any urgency on inflation, the Bank of Canada can continue with its risk management framework. And, with one major downside to Canadian growth taken off the table with the USMCA agreement, the Bank can refocus its energies on the challenge of raising interest rates in an era of high households debt. As mortgages reset to higher rates, debt service costs will eat into household disposable income, weighing on credit growth and consumer spending in the years ahead and auguring for caution from the central bank (link).