(Ottawa) Statistics Canada’s August report on the consumer price index, due out Tuesday, is expected to show the annual inflation rate rose for a second straight month.
Economists estimate that inflation rose about 4% last month, reversing earlier gains as gasoline prices pushed inflation higher.
Canada’s inflation rate fell to 2.8% in June, entering the Bank of Canada’s 1-3% target range for the first time since March 2021. Celebrations surrounding reaching this point however, were short-lived, as inflation resumed its escalation in July.
“We expect the CPI data to reveal that Canadians’ wallets have been hit by rising prices, again, largely due to gas prices,” said Mr. Mendes .
The price of oil has risen steadily throughout the summer, surpassing US$90 per barrel this week. By comparison, June prices hovered around US$70 per barrel.
Meanwhile, TD expects inflation to have risen to 3.8%. Chief Economic Officer James Orlando said another factor likely to be contributing to the rise in inflation in August is the fact that it started falling a year ago.
“We saw a decline in inflation last year, which means there will be [annual] base effects that translate into higher inflation next week,” he said.
The Bank of Canada has left the door open to further hikes in its key rate, in part because it believes it will take some time to return inflation to 2%. But economists say the recent slowdown in the economy will likely convince the central bank to remain cautious.
Earlier this month, the Bank of Canada chose to maintain its key interest rate at 5% after raising rates in the previous two months. The move came after recently released data showed the economy contracted in the second quarter.
There are also other signs the Canadian economy is slowing: The job market is no longer as hot as it was a year ago, while job vacancies are falling and the population is growing.
Orlando said the slowing economy gives the Bank of Canada justification to keep interest rates where they are, even if inflation rises in the short term.
Although progress in reducing inflation appears to be stalling, economists and the Bank of Canada expect that the tightening economic conditions caused by rising interest rates will eventually lead to more price increases. weak.
“While we are not yet seeing compelling evidence that underlying inflationary pressures are heading towards the 2% target, where they have been stuck for some time now, I think this is just one “It’s a matter of time before these interest rate hikes bear fruit in curbing economic activity enough to bring inflation down to 2%,” Mendes said.
In the meantime, however, the Bank of Canada will have to make sense of rising inflation for Canadians.
Following Tuesday’s inflation release, Bank of Canada Deputy Governor Sharon Kozicki is expected to deliver a speech at the University of Regina.
