- Canada’s headline consumer price index rose 0.2% on a not seasonally adjusted month-over-month basis in September 2013, which was above market expectations for a 0.1% gain.
- On a year-over-year basis, the inflation rate held at 1.1%
- The Bank of Canada’s core measure also increased 0.2% on an unadjusted basis in the month, which was below market expectations for a 0.3% rise. The year-over-year rate of growth was steady at 1.3%
The unadjusted all-items Canadian CPI index rose 0.2% on a month-over-month basis in September 2013, and the annual inflation rate held at 1.1%. On a seasonally adjusted basis, consumer prices were also 0.2% higher than in August. The Bank of Canada’s core measure rose 0.2% on an unadjusted basis and was up 0.1% on a seasonally adjusted basis. Relative to a year earlier, the Bank’s core rate was 1.3%, thereby matching August’s gain.
The 0.2% gain in core prices, on an unadjusted basis, in September, reflected stronger women’s clothing prices (4.8%), passenger vehicles prices (1.0%), and tuition fees (3.1%). The monthly rise in overall clothing prices was 2.3% although this paled in comparison to the 4.3% rise in September 2012 and left the measure up just 0.4% on a year-over-year basis. Health and personal care costs were lower than a year earlier due to lower prices for personal care supplies and both non-prescribed and prescribed medicines, which left the measure 0.1% below its year-ago level. This was a slower pace of decline than the 3.9% drop recorded in August. In the month of September, gasoline prices posted a 0.4% dip thereby resulting in the year-over-year rate falling 0.3%. In the third quarter, however, the average price of gasoline increased by 2.6%. Fresh fruit and vegetable prices recorded seasonal declines of 3.7% and 3.3% in September. Both goods and services prices increased by 0.1% in September with goods prices only 0.5% higher than in September 2012 while services prices advanced 1.5%.
Inflation pressures were benign in the third quarter with the headline CPI rate averaging 1.2% and the Bank of Canada’s core measure 1.3%. Price increases were modest among most of the key areas with two components, health and personal care and home furnishings prices, posting declines of 0.5% and 0.6%, respectively. The quickest increases came in the form of rising tuition fees (3.1% although still down from 3.7% in 2012) with clothing and motor vehicles prices increasing at a faster pace than in the first half of the year. Gasoline prices posted an average 2.6% year-over-year gain in the third quarter. So far in 2013, Canada’s inflation rate averaged 0.9% with the core rate at 1.3%. Against this backdrop, the Bank of Canada is likely to maintain the policy rate at 1.0% in next week’s interest rate policy meeting. Recently, Bank officials commented that the economy was underperforming the projections set out in its July forecast with the details of these forecast changes to be released in the Monetary Policy Report that will accompany the rate announcement on October 23. The anticipated downward revisions to the growth forecast will likely translate into the Bank pushing out the timing of its estimate of the closure of the output gap and correspondingly delaying when the inflation rate is forecasted to return to the 2% target. Should this occur, the combination of slower growth and lower inflation would likely lengthen the time the Bank maintains its current policy stance challenging our forecast that the Bank will begin to raise the policy rate in the second half of 2014.
RBC