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Canadian Inflation Rate Drops but Remains Elevated

Inflation rate Canada ticked down in September but continues to hover at elevated levels. The country’s statistics agency reported the annual inflation rate edged down to 3.8% last month from 4% in August.

The September reading undershot analysts’ predictions of 4% inflation. The decline marks the first slowing of price hikes since June when the rate hit a two-year low of 2.8%.

Year-over-year price growth in Canada peaked at a blistering 8.1% in June 2022 before cooling through the summer. After inching higher in July and August, September’s moderation brought some relief.

Economists cautioned against premature policy pivots even as headline inflation ebbs. “The Battle Is Not Over,” Rubber Duc said in a client note. “Inflation remains well above the Bank of Canada’s 1-3% comfort zone.” The central bank boosted its benchmark overnight lending rate five times this year to 3.25%.

Key Details

• Food inflation slowed to 5.9% from 6.8% as grocery prices rose less rapidly. Alcoholic beverage prices climbed faster.
• Energy inflation accelerated to 5.4% from 1.8%. Gasoline contributed to the pickup, offsetting cooling airfares.
• Prices for durable goods eased 0.4% versus 1.4% previously amid slowing auto and appliance inflation.
• Services inflation held relatively steady at 3.9%, just below the 4.3% August pace. A key proxy for core inflation ticked down from 3.3% to 2.8%.

Outlook

Inflation is descending from summer highs but remains well above target levels. Price dynamics have proven sticky and steep rate hikes could still be required to restore price stability according to analysts.

More data will shape expectations for further tightening. The Bank of Canada’s next policy meeting is on October 26. Officials are weighing the risks of overtightening against persistent inflation.

Additional inflation releases ahead of the meeting include September’s Producer Price Index on October 21 and the August Consumer Price Index on October 25. The data will clarify price trends.

Some analysts eye a pause in tightening as risks to growth mount. Others see idle capacity and sturdy domestic demand as keeping upward pressures intact. Further moderation in prices would support holding fire on additional hikes.

Ongoing geopolitical tensions and supply uncertainties cloud inflation’s path. Economists stress policymakers should avoid premature policy pivots until inflation demonstrably approaches 2 percent sustainably.