Canada’s inflation rate slowed to 6.9% in September, but grocery prices soared

Food prices continued to soar across the country in September even as the annual rate of inflation cooled to 6.9 per cent, according to Statistics Canada.

Prices on food purchased from the grocery store continued to soar, rising 11.4 per cent to a new 41-year high.

Last month, shoppers paid more for meat (7.6 per cent), dairy (9.7 per cent), bakery goods (14.8 per cent) and fresh vegetables (11.8 per cent), according to StatsCan.

The agency says food prices have outstretched the overall inflation rate for 10 consecutive months. It pointed to unfavourable weather, higher prices on inputs such as fertilizer and natural gas, and continued disruption from Russia’s invasion of Ukraine as driving up prices.

StatCan said the drop in September’s headline inflation figure was largely thanks to lower gas prices. The pace of price growth at the pumps eased in every province except for British Columbia last month, StatCan said.

CIBC Economics Managing Director Karyne Charbonneau said in a note to clients Wednesday morning that since gas prices have risen over recent weeks, October’s reading could show headline inflation “temporarily heading in the wrong direction again.”

Elsewhere, prices were up for durable goods such as furniture (13.3 per cent higher) and passenger vehicles (8.4 per cent higher).

September’s inflation report also gives a glimpse at tuition prices paid by students. Tuition fees rose 2.3 per cent annually, up from 1.9 per cent a year earlier, according to StatCan. Fees rose the most in Alberta (up 7.7 per cent) and climbed 6.8 per cent in Newfoundland and Labrador after the end of a price freeze instituted in 1999.

Average hourly wages were up 5.2 per cent in the month, failing to keep pace with price growth. But StatCan noted that the gap between inflation and wage growth was larger in September than in August.

In August, Canada’s annual inflation rate slowed to 7.0 per cent.

RBC had expected the annual inflation rate to come in at 6.7 per cent for September.

The latest CPI report comes one week ahead of the Bank of Canada’s next interest rate decision.

The Bank of Canada’s policy rate currently sits at 3.25 per cent following five consecutive increases so far this year. Some of the key metrics the central bank watches to gauge its rate hikes, so-called “core inflation,” held steady from September to August.

“It is great that headline inflation took a small step in the right direction in September, but underlying inflation pressures in core measures showed no signs of cooling down,” said TD Bank Senior Economist Leslie Preston in a note.

She expects the Bank of Canada will increase its policy rate another 50 basis points on Oct. 26 and raise the policy rate to 4.0 per cent by the end of the year.

However, other banks are predicting an even higher rate hike next week given Wednesday’s inflation reading.

CIBC now expects an interest rate hike of 75 basis points next week and a possible quarter-percentage-point hike to end the year in December.

“The Bank of Canada has clearly not slayed the inflation dragon yet and is therefore set for another large rate hike next week,” Charbonneau said.

Meanwhile, BMO Chief Economist Doug Porter agrees the Bank of Canada will have to raise rates more than previously expected.

He said in a note Wednesday that the central bank’s recent “tough rhetoric,” combined with a weak Canadian dollar and the possibility of a 75-basis-point hike from the U.S. Federal Reserve this week, will push policymakers to increase the benchmark rate by three-quarters of a percentage point on Oct. 26.

BMO has another 25-basis-point hike “pencilled” in for December, he said, which would see the central bank’s key rate end 2022 at 4.25 per cent — four percentage points higher than where it began the year.

— With files from the Canadian Press

by Global News