Canada Inflation Research Brief

Inflation cools after two consecutive monthly upticks. Headline inflation fell to 3.8 per cent in September, down from the 4.0 per cent reading witnessed in the previous month and below the consensus estimate of no change. This drop was largely due to declining core prices. The three-month annualized rate of CPI-median decelerated to 3.5 per cent from 4.4 per cent, while CPI-trim slowed to 3.8 per cent from 4.2 per cent. Furthermore, the Central Bank’s old core measure, which excludes the eight most volatile components including mortgage interest costs, even declined by 0.1 per cent — the first monthly fall since July 2020. With inflation trending down once again, combined with Canada’s economy contracting in the second quarter, easing consumer spending, unemployment inching up, and a weak showing in the recently released Business Outlook Survey, it appears excess demand in the economy is diminishing. This suggests that inflation should continue to decelerate in the quarters ahead, without the need for further interest rate hikes.