Canada’s inflation rate fell to 2% in August

What It Means for You

Canada’s inflation rate marking a significant milestone in the Bank of Canada’s ongoing efforts to bring price growth under control. According to a report from Statistics Canada, this is the first time inflation has hit the Bank’s target after months of rising costs.

A Journey to Stability

The central bank began its aggressive interest rate hikes in April 2022 in response to surging inflation. After more than a year of rising rates, July saw the first rate cut since the pandemic hit in March 2020. This move signaled that the Bank of Canada’s efforts to curb inflation may finally be working.

Bank of Canada Governor Tiff Macklem shared in previous statements that their confidence in achieving the 2% target had grown over recent months. August’s inflation rate marks the slowest price growth since February 2021, and core inflation measures, which exclude more volatile items, also ticked down.

What’s Driving the Numbers?

Much of the reduction in inflation can be attributed to a sharp drop in gasoline prices, known for their volatility. Excluding gasoline, the inflation rate stood at 2.2% in August. However, some key areas of consumer spending continue to see elevated costs.

As has been the trend, mortgage interest and rental costs remain the largest contributors to the inflation rate. However, there is a silver lining — growth in mortgage interest costs is beginning to slow down. In fact, if these costs were excluded, the inflation rate would have been only 1.2% year-over-year.

In other areas, grocery prices rose by 2.4% due to what economists call a “base-year effect,” comparing current prices to the same period last year. Meanwhile, prices for clothing and footwear declined, which is unusual during the back-to-school shopping season, and electricity prices grew at a slower pace.

What’s Next for Interest Rates?

With inflation now under control, some economists are suggesting that the Bank of Canada’s next move should focus on boosting the economy. CIBC’s senior economist Andrew Grantham believes that inflation is no longer a major threat and has called for rate cuts to stimulate growth and curb rising unemployment. Grantham predicts a further 200 basis points of interest rate cuts by mid-2024.

The next key date is October 23, when the Bank of Canada will meet to decide on future interest rate changes. Many are now debating whether the Bank will reduce rates by 25 or 50 basis points.

What This Means for You

For Canadians, this stabilization of inflation could bring some relief, particularly when it comes to mortgage and rental costs. With the prospect of further interest rate cuts on the horizon, we may soon see more favorable borrowing conditions for homebuyers and those renewing their mortgages.

Stay tuned for updates on the Bank of Canada’s decisions and how they might impact the real estate market. As always, Upstate Realty is here to guide you through these changes and help you navigate the evolving housing landscape.

Source: Statistics Canada (CBC)