Canada Annual CPI Rises 4.1% in August, Highest Level Since 2003 -- Update

09/15/2021 | 07:36am

By Paul Vieira

OTTAWA--Canada's annual inflation rate rose in August past the 4% level to a nearly two-decade high on increased prices for gasoline and higher costs associated with shelter.

The jump in inflation comes a week after the Bank of Canada signaled in its most recent rate decision that worries about higher costs are beginning to creep in at the central bank, after saying for months that the factors lifting prices were transitory.

Canada's consumer-price index climbed 4.1% on a year-over-year basis in August, Statistics Canada said Wednesday, following a 3.7% advance in the previous month. Market expectations were for a 3.9% rise in August, according to economists at Desjardins Securities. The one-year gain in headline inflation is the biggest since March 2003.

On a month-over-month basis, prices climbed 0.2% in August. On a seasonally adjusted basis, CPI rose 0.4% from the previous month.

Meanwhile, the average of the Bank of Canada's preferred measures for underlying core inflation in August was 2.57%, or the highest level since March 2009. The average in the previous month was 2.43%. Core inflation is meant to gauge price changes in items that exclude volatile goods like food and energy.

The Bank of Canada sets interest rates to reach and maintain a 2% target. In its last rate decision on Sept. 8--delivered in the middle of a national election campaign--the Bank of Canada kept its benchmark interest rate unchanged at 0.25% and maintained its bond-buying program unchanged.

However, economists noted a subtle but notable change in the central bank's language about inflation. The central bank had previously said factors such as supply-chain disruptions pushing prices higher were transitory. In the Sept. 8 statement, the central bank said these factors "are expected" to be transitory, which analysts said reflect pandemic-related bottlenecks stemming from a rise in Covid-19 cases associated with the Delta variant.

Inflation running at more than double the 2% target should be "uncomfortable for a central bank," said Jimmy Jean, chief economist at Desjardins Securities. He said he expects the CPI report to persuade the central bank to scale back its weekly bond purchases, or quantitative easing, from the present pace of 2 billion Canadian dollars, or the equivalent of $1.6 billion.

Statistics Canada said gasoline prices rose 32.5% in August from a year ago, reflecting lower production from oil-producing countries. Meanwhile, the homeowners' replacement cost index--or the cost to maintain a residence to reflect current market prices--climbed 14.3%, or the largest annual increase since September, 1987.

Prices for motor vehicles rose 7.2% on an annual basis in August, and food prepared at restaurants jumped 3.2%. Offsetting this upward pressure were declines in mortgage-financing costs, down 9.3% from August, and telephone services, down 14.2%.

Write to Paul Vieira at paul.vieira@wsj.com

(END) Dow Jones Newswires

09-15-21 0936ET

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