In August 2024, Canada’s inflation rate fell to 2%, reaching the Bank of Canada’s long-awaited target after a prolonged effort to control price growth. This marks the slowest pace of inflation since February 2021, according to Statistics Canada.
The Bank of Canada started raising interest rates in April 2022 to combat surging inflation and introduced its first rate cut in July 2024. Bank of Canada Governor Tiff Macklem previously stated that confidence in inflation reaching the 2% target had grown over recent months.
The decline in inflation is largely attributed to a drop in gasoline prices, which tend to fluctuate. When excluding gasoline, the inflation rate stands slightly higher at 2.2%.
Mortgage and Rental Costs Remain Key Factors
As usual, mortgage interest and rental costs were the largest drivers of the Consumer Price Index (CPI) in August. However, growth in mortgage interest costs has started to slow. CIBC senior economist Andrew Grantham highlighted that without mortgage interest costs, the overall inflation rate would have been just 1.2% year-over-year.
Additionally, consumers saw a 2.4% rise in grocery prices in August due to a “base-year effect” – a reflection of the price differences compared to the same period last year. Clothing and footwear prices dropped unexpectedly during the back-to-school season, while electricity prices saw slower growth.
What’s Next for Interest Rates?
With inflation now under control, economists are shifting their focus to the Bank of Canada’s next move on interest rates. Some predict that the central bank will further cut rates, with forecasts suggesting up to 200 basis points of cuts by mid-2025.
The Bank of Canada’s next interest rate decision is scheduled for October 23, with speculation growing over whether the cut will be 25 or 50 basis points.
