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Inflation cools to 1.1% as food price hikes slow down

Canada's inflation rate slowed to 1.1 per cent in August as food prices increased by much less than their recent pace.
The price of fresh fruits an vegetables declined in August for the first time since December 2013. (Tzido Sun/Shutterstock)

Canada's inflation rate slowed to 1.1 per cent in August from a year earlier as food prices increased by much less than their recent pace.

Statistics Canada reported Friday that the consumer price index increase fell from 1.3 per cent in July. Economists polled by Reuters had been expecting the rate to inch higher, to about 1.4 per cent.

Seven of eight sectors that the data agency tracks were higher. The lone exception was clothing and footwear, which was 0.4 per cent cheaper this August than it was during the same month last year.

Food prices increased 1.1 per cent during last month, after rising at an annual pace of 1.6 per cent in July.

"Prices for food purchased from stores recorded their smallest year-over-year gain since June 2010, up 0.4 per cent in August," Statistics Canada said. "On a year-over-year basis, the meat index decreased in August, after increasing in July, and the fresh fruit index posted its first decline since December 2013."

Grocery prices are getting cheaper in part because of the loonie, which seems to have found a stable range just below 80 cents US after a volatile start to the year.

"Remember the great cauliflower crisis in the winter?" BMO economist Doug Porter wrote in a note, "Well, grocery prices fell one per cent last month.

"These items are arguably the most sensitive to the currency and show how the loonie's newfound stability has helped calm overall inflation," Porter said.

Cheaper gas

Gasoline prices dropped, but at a slower pace than they have in recent months. Year over year, pump prices declined by 11.5 per cent in August. In July, the decline was 14 per cent compared to the same month a year earlier.

The cost of living increased everywhere across the country, from a low of 0.1 per cent in Quebec to as high as 3 per cent in Newfoundland and Labrador.

All in all, the inflation number is still in the range the the Bank of Canada likes to see and the slowdown is in keeping with the central bank's "recent shift to sounding a bit more worried about Canada's economy," TD Bank economist Leslie Preston said.

"Growth is expected to be modest over the forecast horizon, and while we don't expect core inflation to fall much further, we do expect that the bank will need to keep the current low-rate setting in place through 2018 to keep inflation near their target," of between one and three per cent, Preston said.

Statistics Canada also reported retail figures on Friday that showed total sales slipped 0.1 per cent in July, compared with the previous month. Revised figures showed that month-over-month retail sales were essentially flat in May and June after rising 0.8 per cent in April.

The sluggish July sales figures landed the same month that the federal government distributed cheques to families under its revamped child benefit plan.

with files from The Canadian Press

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