The annual pace of inflation in Canada increased to 3.1 per cent in September, driven primarily by rising gas prices amid ongoing conflicts in the Middle East, according to Statistics Canada. This report, released on a Monday, highlights the significant impact of war on energy costs.
Gasoline prices witnessed a remarkable 27.8 per cent rise year-over-year in September, despite the transition to a more economical winter gas blend. When excluding gasoline, consumer prices overall still saw a notable increase of 2.2 per cent compared to the previous year.
Furthermore, the report indicated that fuel oil and other fuel costs surged by 57.8 per cent in September. This increase particularly affected consumers in Atlantic Canada, where many households rely heavily on oil for heating. In contrast, grocery prices experienced a more modest rise of 1.7 per cent last month, marking the smallest annual increase since May 2024.
The slowdown in grocery price inflation was primarily attributed to a significant 2.9 per cent decrease in fresh vegetable prices, along with a drop of 2.7 per cent in sugar and confectionary items. However, beef prices continued to exhibit growth, rising 8.7 per cent in September, albeit at a slower rate than the 11 per cent increase observed in August.
Despite this slowdown in the yearly comparison, Statistics Canada reported that grocery prices have escalated by 33 per cent since September 2020, indicating a long-term trend of rising food costs. Moreover, shelter prices also rose by 1.8 per cent in September, a slight increase from the 1.5 per cent rise recorded in August.
The report outlines that the acceleration in inflation was propelled by not just soaring fuel oil prices, but also a 4.9 per cent increase in mortgage insurance costs and a 1.2 per cent rise in home maintenance and repair expenses. The inflation data from September serves as a critical precursor for the Bank of Canada's upcoming interest rate decision scheduled for October 28.
Economists had generally anticipated an acceleration in inflation, projecting it would rise to 3.2 per cent in September, up from 3 per cent in August. Andrew Grantham, a senior economist at CIBC Capital Markets, noted that the recent comments from Bank of Canada governor Tiff Macklem signaled a "hawkish tone," which has influenced market expectations towards an interest rate hike later in the month.
However, the latest inflation report implies that there is no immediate urgency for policymakers to raise interest rates. Grantham mentioned that officials could take additional time to evaluate the evolving U.S. trade relations and the potential ramifications of new tariffs before making such decisions.
In a media roundtable from Thailand, Macklem expressed concerns regarding the extended high levels of energy prices, which elevate the risk of broader inflation. He indicated that the central bank is prepared to raise rates if necessary. During discussions related to the International Monetary Fund meetings held in Bangkok, Macklem noted that global economic performance had been better than anticipated, especially in light of persistent conflicts in regions such as Iran and Ukraine, alongside significant trade disruptions and rising borrowing costs due to increasing bond yields.
Yet, Macklem cautioned that the underlying resilience of the global economy is becoming increasingly "under strain" as ongoing shocks, particularly those stemming from the Middle East conflict, continue to drive up energy costs. He noted that some of the resilience sources, such as the release of global oil reserves, are being depleted, which has previously assisted in mitigating the impact of the energy price shock. "You can only release strategic energy oil reserves so many times, but that has helped contain this energy price shock," Macklem added.
