Canada’s Median CPI rose: 2.4% in September

Canada’s Median CPI (prices of store-bought food) rose 2.4% in September, the same rate of growth as August This is the second month in a row that grocery prices have risen faster than headline inflation. While prices fell year-on-year for some foodstuffs, such as seafood and other seafood products (-4.9%), nuts and seeds (-0.9%), and fish (-0.3%), others continued to rise and remained high, such as fresh or frozen beef (+9.2%), edible fats and oils (+7.8%) and eggs (+5.0%).

In addition, food prices purchased from restaurants rose at a slightly faster pace in September (+3.5%) compared to August (+3.4%). The consumer price index rose 1.6% year-on-year in September, down from a 2.0% increase in August. This was the smallest annual increase since February 2021 (+1.1%). The main contributor to the headline slowdown was the year-on-year drop in gasoline prices in September (-10.7%) compared to August (-5.1%). The consumer price index for all items except gasoline rose 2.2% in September, matching the August increase for this measure.

Although the rate of price rise has slowed, price levels remain high. Compared to September 2021, the CPI increased by 12.7% in September. Canadians still feel the impact of high price levels for everyday essentials such as rent (+21.0%) and store-bought food (+20.7%), which increased over the same 3-year period.

Low gasoline prices

On an annualized basis, gasoline prices fell further in September (-10.7%) compared to August (-5.1%), putting downward pressure on the CPI for all items.

On a monthly basis, gasoline prices fell 7.1% in September after a 2.6% decline in August. The decline in September was driven by lower crude oil prices amid growing concerns about weak economic growth, as well as lower costs associated with switching to winter mixtures.

Canadian Consumer Price Index (CPI) and its Economic Effects

The month-to-month release of the Canadian Consumer Price Index (CPI) data is a critical event for financial markets, policymakers and economists. The latest report indicates that Canada’s consumer price index remained steady at 2.3%, matching expectations and the previous month’s figures. This constancy can have different effects across different sectors of the economy.

What is the Consumer Price Index?

The consumer price index (m/m) measures the average change over time in the prices that consumers pay for a basket of goods and services. It is a key inflation indicator and is used by the Bank of Canada (BoC) to guide monetary policy decisions. A stable CPI is generally seen as a sign of a balanced economy, while large volatility can indicate fundamental economic issues.

Inflationary trends

The fixed consumer price index at 2.3% indicates stable inflation. For the Bank of Canada, this stability means that it may be less inclined to aggressive changes to interest rates in the short term. Maintaining inflation around the 2% target is critical to economic stability, and the Fixed CPI suggests that current monetary policy effectively manages inflation expectations.

Consumer Confidence

Static inflation can boost consumer confidence. When prices are expected, consumers are more inclined to spend, which can spur economic growth. Consistency in the CPI suggests that Canadians may feel secure in their purchasing power, which is vital for sectors such as retail and services.

Impact on borrowing costs

With the CPI unchanged, expectations around interest rates may stabilize. If inflation remains under control, the Bank of Canada may choose to keep interest rates steady, making borrowing costs more predictable for consumers and businesses. This can encourage spending and investment, and boost economic growth.

Canadian CPI Trends: October 2023

As of the last knowledge update in October 2023, here are some of the general trends observed in the Canadian Average CPI:

1. Inflationary pressures

The average CPI for the Canadian dollar shows ongoing inflationary pressures in the Canadian economy, driven by factors like supply chain disruptions and rising energy prices.

2. Volatility in price changes

There was a marked volatility in the prices of basic goods and services, which affected overall inflation readings. The average CPI helps mitigate this volatility by focusing on average price changes.

3. Impact of consumer spending

Rising average CPI numbers were affecting consumer spending habits, as many households felt distressed by the increasing cost of living. This may affect consumer behavior and future spending patterns.

4. Bank of Canada response

The Bank of Canada has been closely monitoring the average CPI as part of its interest rate decision-making process. Persistently high inflation figures could lead to more aggressive monetary tightening.

5. Comparative inflation rates

Analysts often compare Canada’s average CPI to inflation rates in other developed countries, especially the United States, to assess relative inflationary pressures and competitiveness.

6. Manufacturing

Impact: Manufacturers may face an increase in raw material and labor costs, which may lead to higher prices for finished goods. This can affect competitiveness locally and internationally.

7. Healthcare

Impact: Inflation can affect healthcare costs, including prescription medicines and medical services, potentially increasing consumers’ direct expenditures. Consistency in the CPI suggests that Canadians may feel secure in their purchasing power, which is vital for sectors such as retail and services.