1.953%

Today’s release of Consumer Price Index (CPI) data from Statistics Canada brought some welcome news to (many) Canadians and the Bank of Canada alike. The annual pace of consumer price inflation declined again in August, all the way down to the Bank’s target of 2.0%—you can tell it’s below target at two decimal places. With inflation back to target, the Bank should feel confident in pursuing more cuts to its policy rate, even if a discussion about the size of future cuts is warranted.

Once again, there is plenty of evidence showing that prices have broadly eased throughout the CPI. Statistics Canada noted that gasoline prices had the biggest impact on the drop in inflation, which is true after prices at the pump fell last month. Beyond that, five major categories in the CPI saw a decline in their rates, including shelter—the one remaining outlier propping inflation up. What’s more, transportation, recreation and education, household operations, clothing and footwear, and gasoline have all seen deflation—that is, actual price declines—over the past year.

Further, core measures of inflation (which strip out the most volatile elements of the CPI) all declined again in August, including the Bank’s preferred measure of CPI Trim (to 2.4%) and CPI Median (to 2.3%).

The path ahead for inflation is not entirely straightforward, with the final four months of 2024 likely to be characterized by some degree of price volatility due to base-year effects; in fact, deflation that occurred in the final few months of 2023 may push the current inflation rate slightly upward in the near-term. The Bank’s next rate announcement comes on October 23rd, which follows that month’s CPI release, so it’ll have the benefit of an additional month of data on which to base its decision. Given the state of inflation today, alongside a deteriorating labour market, it’s abundantly clear that the need for additional interest rate cuts has only grown.