Right on target!

Canada's headline CPI finally returned to the Bank of Canada's target in August, falling 2.0 percent year-on-year from the 2.5 percent posted in July, according to data released today by Statistics Canada. This was the lowest annual increase since February 2021.  

The chief contributor to the fall in the headline rate was the price of gasoline, which fell 2.6 percent in August to stand 5.1 percent lower than a year ago. However, the easing in inflationary pressures is broad based, as shown by the fact that CPI excluding the cost of gasoline slowed to 2.2 percent in August from 2.5 percent in July. The one truly sticky sub-component continues to be shelter costs, up 5.3 percent from a year ago. Amid continuing rapid population growth, there is little prospect of any relief in this area. 

The Bank of Canada's three preferred measures of core inflation all eased in August. Their mean value now stands at just over 2.2 percent and one of them, "CPI-common", now stands exactly at the Bank's 2 percent target.

In making its latest rate reduction earlier this month the Bank warned that the base effect could briefly turn unhelpful late this year, pushing headline CPI readings higher. That warning remains relevant, but there is no doubt that the Bank is now in a much better position to focus its attention on supporting the real economy and the employment market, rather than exclusively on combatting inflation. Depending on how the data look in the coming weeks, the possibility of at least one 50 basis point rate cut before year-end has clearly increased. 

And lastly, just for some light relief, I can't resist quoting the headline from the CBC website's report on today's data:  "Canada's inflation rate finally hit the Bank of Canada's target. What does that mean for prices?" Well, duh.