Statistics Canada reported yesterday that Canada’s annual inflation rate remained elevated in August, pointing to ongoing price pressures from energy products caused by the conflict in the Middle East. Meanwhile, two key core measures of inflation were also unchanged in August and close to the Bank of Canada’s (BoC) 2% target, suggesting price pressures are not broad-based. Here’s more from Canada’s inflation report.

• Canada’s annual inflation rate was 3.0% in August, unchanged from July. Looking at August, consumer prices declined by 0.1% over the previous month, their second decline in the past three months.
• Gasoline prices are still climbing, just more slowly. Gasoline prices rose 22.8% year-over-year in August, down from 25.7% in July, as the Middle East conflict continues to weigh on energy costs.
• Grocery prices rose by 2.8% year-over-year, which was the first time in more than two years grocery inflation has come in below the headline inflation rate. Meanwhile, rent picked up to 2.8% from 2.5% in July, and travel costs jumped on higher fuel surcharges.
• The BoC’s preferred core measures of inflation, trim and median, came in at 1.9% and 2.0%, respectively, unchanged from July.
• With core inflation right at the edge of 2% and few signs the upward pressure on energy prices has spread to other products, the BoC has held its benchmark overnight interest rate steady at recent meetings. Still, elevated headline inflation keeps the possibility of a rate hike on the table.

Inflation remains mostly energy-driven, which has given the BoC the room to pause on changing its policy interest rate at recent meetings. Still, those elevated energy prices could eventually spill over to other consumer products, which will complicate the decision of the BoC. With energy costs still elevated by the ongoing Middle East conflict and trade tensions with the US adding further uncertainty, the BoC has plenty to weigh before its next decision.

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