Canadian Consumer Price Index, August 2010 Results

Date: September 21, 2010

Canadian Consumer Price Index, August 2010 Results

Source: Statistics Canada

Link to Release: http://www.statcan.gc.ca/daily-quotidien/100921/dq100921a-eng.htm

Summary: Canada’s Consumer Price Index (CPI) – the most commonly quoted measure of price inflation – increased by 1.7 per cent year-over-year in August after a 1.8 per cent annual increase in July. The August result was driven largely by a five per cent rise in energy prices, but prices were higher for seven of the eight major index components. The Bank of Canada’s Core CPI, which strips out the most volatile components in the index, climbed 1.6 per cent in August. The annual rate of inflation was highest in Ontario, where a 2.9 per cent increase in prices was experienced. The annual CPI increase in Ontario was driven by higher prices for gas, electricity, passenger vehicle insurance premiums and estimated  omeowner's replacement costs.

Analysis: Annual growth in both the “All Items” and “Core” Consumer Price Indices were below the Bank of Canada’s projection for the third quarter. With this in mind, the latest CPI release adds fuel to the interest rate debate in Canada. The calls for the Bank of Canada to halt interest rate hikes until we have a better idea of the economic growth trajectory in Canada will likely become louder. The argument will be that with inflation below the two per cent target we are not experiencing strong upward pressure on consumer prices, so there is no need to hike rates in order to slow spending. However, in recent statements the Bank has argued that consumer and business spending is in line with expectations. This suggests that the Bank may still be considering further rate hikes this year and/or in 2011.

Source: Toronto Real Estate Board

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