October 21, 2020 | 09:18
Inflation Also Isn't Travelling Far
Canadian consumer prices slipped slightly in September holding overall inflation trends well in check. The headline CPI dipped 0.1% m/m, but due to an even larger drop a year ago, the year-over-year inflation rate crept off the bottom to 0.5% y/y, close to expectations. Meantime, underlying price trends remain quite stable, with only one of the BoC's three core measures even budging, and the average of the trio running at just above 1.7% y/y. That's not far from the post-lockdown low of just under 1.6%, reached back in May, but also still below the pre-pandemic trend of right around 2%.
A couple notable factors in an otherwise non-notable report: This is the month that tuition fees are captured, and they rose 1.9% this year after last year's outlier for a 3.6% drop (driven mostly by Ontario). With a weighting of just over 2% in the index, this move alone added a bit more than 1 tick to overall inflation. Air fares have been heavily distorted this year, not surprisingly, and they were down 3.2% y/y—but that was a much milder drop than in usually hectic August, when they were off 16% y/y, due to the absence of a summer travel season. Food prices continue to moderate noticeably, easing to a 1.6% y/y clip; for groceries alone, the trend has dipped to just 1.3% y/y from an April peak of 4% y/y. Finally, child care services popped 1.2% in the month and are now up 2.4% y/y.
We have seen a rapid rise in home prices in recent months (and years); how is that being reflected in the CPI? Homeowner replacement costs are sparking higher, and are now up 2.6% y/y, versus a reported drop in 2019. (New home prices were also reported separately today, and they were much higher than expected last month at up 1.2% and 3.2% y/y. Still, all of these increases are miles below the rate of price gains reported in the existing home sales reports, which are clocking in at a double-digit pace.) Offsetting these gains are easing mortgage costs, now up 0.1% y/y versus an 8% rise last year, and softer rent increases, now 1.6% y/y. As a result, overall shelter costs are running at an unremarkable 1.7% y/y pace, at least according to the CPI.
Bottom Line: There are no big surprises in Canadian inflation, with headline price trends still barely above zero overall and core quite stable and below 2%. One side note is that Canadian headline inflation remains almost a full point below the U.S. pace (1.4% y/y last month). But it's the latter that is the outlier, as almost all major industrialized economies are posting headline inflation close to the zero mark at the moment.