Canada’s inflation holds steady at 3 percent as crude stays firm

Canada's annual inflation rate remained steady at 3 percent in August, unchanged from the previous month, according to data released on Monday. The steady inflation was attributed to the stable prices of crude oil, which impacted gasoline costs, while food prices only experienced a slight increase. The next month's consumer price index data may indicate further inflation growth, as the benchmark Brent crude price surpassed $100 per barrel and the new 50 percent tariffs imposed by US President Donald Trump took effect, affecting costs throughout the month.

Reuters polled analysts who had predicted the annual inflation rate to be 3 percent and the monthly inflation to remain unchanged. On a month-on-month basis, consumer prices dropped by 0.1 percent, as reported by Statistics Canada. Gasoline prices experienced a small decline in August but continued to rise at an annual rate of 22.8 percent, which was a decrease from the 25.7 percent increase observed in July.

In contrast, food prices decelerated and reached an annual growth rate of 2.8 percent, marking the first time in 14 months that food prices fell below the 3 percent threshold. Dairy products were the leading contributors to the slowdown in food prices, with costs increasing by 0.7 percent annually in August compared to a 3.1 percent rise in July.

Tourism and travel prices surged by 26.1 percent, another significant factor contributing to inflation after gasoline and food, due to the base year effect. In the same period last year, costs in this category had declined due to a sharp decrease in Canadians traveling to the United States. The core Consumer Price Index (CPI) measures, such as CPI-median and CPI-trim, which exclude the most extreme price changes, remained around 2 percent and 1.9 percent respectively in August, similar to July.

These core measures have been hovering around 2 percent for several months, easing concerns that crude prices were affecting other costs. Shelter costs, including rents and mortgage interest, rose slightly to 1.5 percent in August from 1.3 percent in July. The Bank of Canada indicated the possibility of multiple rate hikes if inflation persists higher and impacts the core measures.

The central bank aims to maintain inflation near the midpoint of its target range of 1 percent to 3 percent. Following the inflation data, the Canadian dollar weakened, trading down 0.29 percent to C$1.3909 against the US dollar, or 71.90 US cents. Two-year government bond yields rose by 1.4 basis points to 2.703 percent.