on September 17, 2024 
For the first time since February 2021, Canada’s inflation came in at 2% in August – exactly on target where the Bank of Canada wants it to be. That is a significant drop from July when it came in at 2.5%, and it’s also lower than most economists were expecting.
The most significant factor in the drop was gasoline prices, which came down substantially from July to August this year and also benefited from a favourable “base year” effect (meaning gas prices were unusually high in August of last year, which creates a better comparison for this year’s price). If gasoline is removed from the inflation calculation, it moves up to 2.2% for August.
On the other hand, the most significant factor pushing inflation up continues to be the category “housing and shelter costs”, which have been pushed up by the high interest rates of the last 12 months needed to fight inflation.
With the most recent Gross Domestic Product (GDP) and unemployment data showing the economy is not performing well in the third quarter so far, this is another solid indicator that we’re going to see consistent policy rate cuts by the BoC over the next few months. We will get September’s GDP and unemployment data in a couple weeks, and then September’s inflation report in mid-October. If these continue to show that the economy is faltering, there’s a strong chance that the BoC will cut the policy rate by 0.50% at the next policy meeting on October 23rd. Inflation will no longer be a concern and the BoC will instead need to shift its policy towards stimulus to prevent a full-scale recession.
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