Inflation pace slows, rate hike still expected

OTTAWA — The annual pace of inflation slowed more than expected in September as increases in the price of gasoline continued to ease.

Statistics Canada said Friday the consumer price index in September was up 2.2 per cent from a year ago compared with a yearover-year increase of 2.8 per cent in August. Economists had expected the September figure to come in at 2.7 per cent, according to Thomson Reuters Eikon.

The inflation report comes ahead of the Bank of Canada’s rate decision next week when it will also update its forecast for the economy in its monetary policy report. The central bank, which aims to keep inflation within a target range of one to three per cent and adjusts its interest rate target to help achieve that goal, is expected to raise its key interest rate target, which sits at 1.5 per cent, by a quarter of a percentage point.

TD Bank senior economist James Marple said the softer-than-expected inflation report did little to alter TD’s expectation that the Bank of Canada will raise rates next week.

“I don’t think one month of soft price growth is going to change the Bank of Canada’s mind on a rate hike,” he said.

Marple said the new U.S.-Mexico-Canada Agreement removed a key risk for the economy, but added challenges such as high household debt remain.

“There’s still are some underlying risks that have always been there and maybe weren’t in the spotlight because we were all focused on trade,” he said.

“We have very high household debt levels. We have mortgage rates that have been increasing and will continue to increase even with very little action from the Bank of Canada.”

Statistics Canada said prices were up in all eight major components for the last 12 months.

The transportation index, which includes gasoline, was up 3.9 per cent in September compared with a 7.2 per cent move in August as gasoline prices last month were up 12 per cent compared with a 19.9 per cent increase in August.

However, the transportation group remained the largest contributor to the overall year-overyear increase in the index.

Food prices were up 1.8 per cent. Shelter costs rose 2.5 per cent. Alcoholic beverages and tobacco were up 4.4 per cent.

The price of air fares, while up 7.4 per cent from a year ago, fell 16.6 per cent compared with the previous month. Hotel rates were also down 5.2 per cent compared with a year ago.