- Canadian consumer price inflation rose to 0.5% year-on-year (y/y) in September, up from 0.1% in August and a hair above the median consensus estimate of 0.4%.
- Prices rose in six of eight major categories on a year-on-year basis, but all are below 2%. The fastest increases were for shelter (up 1.7%) and health and personal care (up 1.6%). The two categories with price declines were clothing and footwear (-4.1%) and recreation, education and reading (-1.2%).
- Month-on-month, seasonally adjusted prices edged up by 0.1%. The biggest movers in the month were transportation, which rose 0.5%, and shelter which rose 0.3%. Clothing and footwear prices saw the biggest drop, falling 2.8%.
- The Bank of Canada’s core inflation measures were mostly unchanged, with the CPI-median and CPI-common steady at 1.9% and 1.5% respectively. CPI-trim edged higher to 1.8% from 1.7% in August.
Key Implications
- The acceleration in Canadian price growth in September is less than meets the eye. Air transportation prices typically drop in September following the summer period. This year, with few people travelling by air, the decline was much less sharp. At the same time, with pandemic worries about public transportation, demand and prices for passenger vehicles have moved higher.
- Soft inflation is the context needed to stories about the unprecedented nature of the Bank of Canada’s response to the COVID crisis. Even with massive bond purchases and a surge in money supply growth, inflation is well under target and showing few signs of breaking significantly higher. As long as spending is constrained by the virus and the labor market impaired, this soft inflation backdrop will leave ample room for policy to remain accommodative.
