Canada’s inflation accelerates in September, likely to continue trending up

Canada’s consumer price inflation rose in September from the prior month. The CPI inflation accelerated to 1.3 percent year-on-year from August’s 1.1 percent. The acceleration is mainly driven by increase in prices of gasoline. The transportation index was up 2.3 percent annually from August’s 0.3 percent print. On the contrary, the Bank of Canada’s core inflation measure remained stable at 1.8 percent.

Other than transport, the biggest driver was footwear and clothing that rose to 0.1 percent. Meanwhile, other components experienced deceleration in inflation in September. Prices of food rose just 0.1 percent year-on-year in September, a slowdown from 1.1 percent in August. Prices of food have gone from an important source of CPI growth in 2015 to putting downward pressure on the headline index.

Canada’s headline inflation is expected to continue to trend upwards, along with the price of oil, noted TD Economics in a research report. However, underlying  price pressures continue to be weak and seem to be easing as the past depreciation in the Canadian dollar falls out of the index, added TD Economics.

In September, the loonie was a tad higher as compared to its value one year ago. While a more dovish central bank might exert certain downward pressure on the currency in the future, it might be countered partially by increasing energy prices.

“The Canadian economy appears on track to see growth accelerate to an above trend rate in the second half of this year, but following that the going will continue to be slow”, according to TD Economics.

The recent alterations to mortgage regulations just affirm this narrative, shifting some of the expected deceleration in the housing sector slightly closer on the horizon.