Inflation Remains at 3%, But Drivers Are Changing.
August inflation data is now out, and the headline is of course a 3% year over year increase for August. Compared to July, it’s actually down by 0.1% (not seasonally adjusted). If we exclude gasoline, the number drops to 2.4% for August. The main drivers of inflation over the past year have been:
- Travel and tours
- Shelter
- Food
- Transportation (including gasoline)
However, what we’re seeing the past few months, and particularly in August’s data, is that food and shelter inflation figures have both been slowing down. In fact, today we saw both come in under the overall CPI number of 3% (food at 2.8% and shelter at 1.5%, both year over year). The real source of CPI increases has shifted towards, of course, gasoline and in turn transportation.
Let’s talk about gasoline. It was up 22.7% this August compared to last, which we all feel at the pump. Some moderately good news was that we saw less of an increase in August than we did in July (which was up 25.7% over the same 1-year period). The bad news is that for the next 6 months, barring the resolution of the war in Iraq and gas prices returning to normal levels, we’re still going to see big upswings in the year over year numbers. Our biggest win will be the end of this middle eastern conflict, which will remedy both gas prices we see every day and the CPI inflation that’s weighing heavily on Bank of Canada rate decisions.
There are three important takeaways for you regarding inflation:
- Wage growth has slowed to 2%, meaning it’s now under inflation. People are really going to start feeling like their purchasing power is decreasing – because it is.
- When it comes to the Bank of Canada, their core inflation measure is still in line with their ideal 2-3% range. That’s good news for Canadians, as this data will contribute towards a rate hold on the upcoming October 28th rate announcement.
- Mortgage interest costs are holding, coming in at close to 0% month over month in August. However, rent is up 0.8% in August and 2.8% over the past 12 months. For prospective buyers, the gap between rental costs and homeownership expenses remains an important factor to consider when weighing whether now is the right time to enter the market.
Still reading? We had a second data release today from Statistics Canada: the monthly survey of manufacturing data for July. Total manufacturing sales were down 0.4% to $78.7 billion, however the data might just be a blip on the radar, as we’ve seen 5 straight months of increases and a year over year increase of 10.9%.
The subsectors with the biggest declines were:
- Chemical products (down 6.6%)
- Food manufacturing (down 1.4%)
Probably not a surprise, but the petroleum and coal was up 1.9%. Capacity utilization also increased by 1.8% in this subsector.
Overall it’s good news (despite the capacity utilization dropping from 82.2% to 80.7% over the past month), and Statistics Canada still believes the upswing in the manufacturing sales will carry forward into their next data release.
Thanks for reading today. You may have noticed the report looks a bit different thanks to a guest writer, so feel free to send feedback about this version. Dr. Sherry Cooper will be back with her regular CPI report next month.