Annual inflation rate unchanged in August

The rate was far below the Bank of Canada's goals in its inflation targeting strategy

Annual inflation rate unchanged in August

The Canadian annual inflation rate was static at 0.1% in August, with rising food prices counteracted by weakening gasoline costs, according to Statistics Canada.

An earlier poll by Reuters predicted that the rate would stay at 0.1%, essentially unchanged from the July reading. This was far below the Bank of Canada’s 2% target, and lower than even the modest 0.4% year-over-year increase projected by economists in a Refinitiv survey.

Meanwhile, the average of Canada’s measures for core inflation was at 1.7%.

Earlier this month, the BoC kept its key policy interest rate at its effective lower bound of 0.25%, and said that it will maintain this level until inflation reverts to the central bank’s target.

Among the goals of the policy is to stimulate more borrowing due to lower rates across the board. BoC Governor Tiff Macklem said that the financial system’s recovery hinges on Canadians getting back most of their purchasing power through stronger employment numbers.

“Incomes have been reasonably well-sustained, consumption has slowed, and so savings overall in the economy have gone up. That’s helpful in reducing vulnerabilities,” Macklem said. “Having said that, we’ve been very clear at the Bank of Canada, we’ve underlined the vulnerabilities caused by household indebtedness and too much reliance on the housing sector. Those have not entirely gone away, but when you look at our policy response, the best predictor of whether somebody is going to repay their mortgage is whether they have a job.”

Macklem said that this is largely due to COVID-19’s unprecedented economic impact, which will last far beyond the current crisis.

“The recovery will likely be prolonged and bumpy, with the potential for setbacks along the way,” Macklem said. “If, as we expect, supply is restored more quickly than demand, this could lead to a large gap between the two, putting a lot of downward pressure on inflation.”

A recent Finder survey has found that 95% of economists believe that the BoC rate will stay at 0.25% for longer than a year. Around 75% of those polled also said that the rate will not begin moving again until late 2022 or even well into 2023.