Canada released another batch of weaker-than-expected inflation numbers, with the core consumer price index slowing from 2.5% to 2.0% year-over-year in August — its lowest reading since February 2021.
On a monthly basis, the headline CPI fell 0.2% versus consensus for a flat reading and a previous increase of 0.4%. Meanwhile, the core reading fell 0.1% on a monthly basis while the annual core CPI fell from 1.7% to 1.5%, in line with expectations.
Other inflation measures were mostly lower than expected, with the deflator CPI falling from 2.7% to 2.4% y/y and the core CPI falling from 2.2% to 2.0% y/y versus expectations for no change.
Link to Canada CPI Report (August 2024)
The report’s components revealed that the slowdown in the core CPI was mostly due to lower gasoline prices during the month, even as rent costs and mortgage interest rose in August. Lower prices for air travel, tours, clothing and footwear also contributed to the weak monthly reading.
However, consumers paid 2.4% more for grocery items at stores in August, after a 2.1% increase in July. This is said to be due to a base effect, with dairy products seeing a 3.3% year-on-year rise in prices while fresh fruit was 1.5% more expensive compared to August 2023.
Market Reactions
Canadian Dollar vs Major Currencies: 5 minutes
Comparison of the Canadian Dollar with Major Currencies Chart by TradingView
The Canadian dollar, which had been trading in tight ranges against its forex counterparts a few hours before the CPI release, took off in different directions after seeing the numbers come in red.
The Canadian dollar rose sharply against the Japanese yen, which was already slightly weaker just minutes before the inflation report, while it gained against the New Zealand dollar, the Swiss franc and the Australian dollar. It also recovered against the US dollar, which had been heavily sold off ahead of the report as traders may have adjusted positions ahead of US retail sales as well.
Although the Canadian dollar initially fell against the euro and the British pound upon the release of the Canadian CPI, it quickly recovered and maintained its gains in the hours following the release of the index. On the other hand, the Australian dollar pared its losses against the Canadian currency about an hour after the report was released.