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Canada’s inflation had broad-based deceleration in September

October 17, 2023

Ryan Filipovic, CPA shared this article

REAL ECONOMY BLOG | October 17, 2023

Canada’s headline inflation rate declined to 3.8% in September from 4.0% in August, reversing the upward trend of the past three months and a sign of progress in the Bank of Canada’s efforts to restore price stability.

On a month-over-month basis, the consumer price index dropped by 0.1% for the first time this year. More important, all core inflation measures also declined, according to data released Tuesday by Statistics Canada.

Despite high gasoline prices and rising housing costs, there was a broad-based deceleration in price increases, most notably in groceries and some services.

Canada CPI

The lagged impact of prior rate hikes is taking hold. As mortgage rates rise, households face much higher mortgage payments and have to cut back on discretionary spending.

Softening consumer demand leaves less room for businesses to raise prices. This trend is expected to continue, even though inflation is expected to remain above 3%.

Energy and gasoline prices might cause the headline inflation figure to fluctuate in the short run, but they will not alter the Bank of Canada’s efforts to tame inflation. The central bank will most likely not raise rates any further as weaker growth is expected through the year’s end.

The data

Grocery prices rose by 5.9% on a year-over-year basis, down from 6.8% in August.

Some grocery chains, following conversations with the federal government, have promised price stabilization with price matching, price freezes and discounts, which helped slow price growth.

Price growth in restaurants also slowed. Even though worker strikes in grocery stores show that wage growth still places upward pressure on prices, businesses might not have much room left to raise prices without losing customers.

In a classic example of supply and demand, air fares dropped by a sharp 21.1% on an annual basis, which coincided with the increase in flights offered by airlines.

It’s another example of consumers being more careful in their discretionary spending including air travel and dining out.

Gasoline prices rose by 7.5% on a year-over-year basis because of comparisons to last year’s lower levels, but on a monthly basis gasoline prices fell by 7.4% from August.

The takeaway

While volatility in global energy markets continues to pose a risk to price stability, gasoline prices are on a downward trend, which should bring even further relief to inflation numbers in October.

The Bank of Canada will continue to monitor geopolitical conditions and its effect on global oil prices, but no further rate hikes are expected.

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This article was written by Tu Nguyen and originally appeared on 2023-10-17 RSM Canada, and is available online at

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