In a surprising turn of events, Canada's inflation rate experienced a slowdown last month, primarily due to slower increases in grocery prices and a substantial drop in airfare prices. This development comes as the central bank prepares for an upcoming decision on interest rates. Despite this slowdown, inflation continues to surpass both the target and recent forecasts.
The consumer-price index (CPI), a key measure of inflation, rose 3.8% from last year, lower than the projected 4.0% increase. In comparison to August, September's CPI fell by 0.1%. The Bank of Canada's core inflation measures, the weighted median and trimmed mean, averaged 3.75% in September, down from 4.0%.
For about a year now, despite attempts to bring annual inflation down to its 2% target, core inflation rates have remained between 3.5% and 4%. The bank anticipates that inflation will hover around 3% for a year after its sharp deceleration from an 8.1% peak in summer 2022.
Grocery prices continued to climb but at a slower pace, with an on-year increase of 5.8% in September compared to a 6.9% rise in August. Prices for durable goods, particularly new passenger vehicle prices, also slowed down last month. Conversely, gasoline prices rose at a faster pace, and price growth accelerated for non-durable goods in September. Excluding gasoline, the CPI advanced 3.7%.
Recent job data suggests that wage gains are outpacing inflation, which could pose potential challenges for the central bank in controlling inflation. The Bank of Canada maintained its policy rate at a 22-year high of 5% after consecutive quarter-point increases, with businesses expecting a longer return to target as near-term expectations remain high.
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