Canada's Inflation Roller Coaster: What August Numbers Reveal

Canada's inflation increased to 1.9% in August, driven by a slower decline in petrol prices and a slight rise in food prices. Economists focus on core inflation for trends as the carbon levy removal distorts data. The lower inflation may lead to a rate cut by the Bank of Canada.

In August, Canada's inflation rose to 1.9% amid a slower reduction in petrol prices and marginal food cost increases, reported on Tuesday. The annual inflation rate faced distortion primarily due to the cancellation of the carbon levy on petrol sales. This distortion has led economists to concentrate on core inflation measures to comprehend price trends.

While the consumer price index saw a minor dip of 0.1% monthly, predictions by analysts had set the annual inflation at 2% for August, rising from 1.7% in July. Despite concerns over persistent high underlying inflation, the unexpected low inflation rate boosts the probability of a Bank of Canada interest rate cut, with monetary markets predicting a 93% likelihood of a 25 basis point reduction on September 17.

The Canadian dollar slightly appreciated post the inflation release, trading at 1.3761 against the U.S. dollar. Two-year government bond yields increased by 1.1 basis points to 2.507%. Though petrol prices led the inflation rise, transportation costs decreased 0.5% in August. Excluding gasoline, CPI went up by 2.4% in August, showing stable core inflation indicators.

(With inputs from agencies.)