September 20, 2023
Canada’s annual inflation rate in August increased to four per cent from 3.3 per cent in July, the highest since April amid surging gasoline prices and increasing the possibility of another interest rate hike, economist say.
The acceleration was largely driven by a 0.8 per cent year-over-year increase in prices for gasoline in August, Statistics Canada reported Tuesday, the first yearly increase since January 2023, after falling 12.9 per cent in July. On a monthly basis, pump prices rose 4.6 per cent in August alone.
While year-over-year price growth for groceries slowed in August, prices remained high, Statistics Canada said. On a year-over-year basis, prices for food bought at stores rose 6.9 per cent in August compared with an 8.5 per cent increase in July.
Consumer price index year-over-year percentage change
At the same time, shelter prices last month increased six per cent after a 5.1 per cent jump in July, driven by rising rents and higher interest rates.
Economists widely expected this uptick in inflation and anticipate slower progress on getting price growth down over the next few months. The inflation rate remains well above the Bank of Canada’s target of two per cent.
The central bank is slated to make its next interest rate decision on Oct. 25 — a decision economists say just got tougher.
The consumer price index — a broad-based measure of inflation — was 3.3 per cent higher in July than it was a year earlier. Canada’s inflation rate tumbled to 2.8 per cent in June, entering the Bank of Canada’s target range of one to three per cent for the first time since March 2021. The victory on reaching that benchmark was short-lived, however, as inflation ticked up the next month.
In March 2022, the Bank of Canada began an aggressive rate-hike campaign in a bid to drive inflation down. Before the campaign, the bank’s key overnight lending rate sat at 0.25 per cent. Now, it’s at five per cent, the highest in 22 years.
As the Bank of Canada struggles to bring inflation under control, it continues to rely on hiking interest rates. The Bank announced earlier this month that it’s leaving its key overnight lending rate at five per cent, but didn’t rule out further hikes as it attempts to drive inflation down.
