Food Price Increase Slows, but Overall Inflation Rate Strengthens in August

Gains in food prices slowed for the second straight month in August, although the headline inflation rate still rebounded from July. 

Statistics Canada’s Consumer Price Index (CPI) on Tuesday showed year-over-year prices for food purchased from stores rose 6.9% in August compared with an 8.5% increase in July. The July increase in food prices marked a reduction from a 9.1% uptick in June. 

However, StatsCan said Canada’s overall inflation rate was still up 4% year over year in August, following a 3.3% increase in July, largely the result of higher prices for gasoline.  

The strength in August inflation rate once again raises the potential for another interest rate hike from the Bank of Canada. The Bank held its key overnight lending rate steady at 5% in August but warned that further increases could be on the table as it tries to return inflation to its preferred target of 2%. 

According to StatsCan, prices for fresh fruit (+0.2%), cereal products (+9.8%), and fresh or frozen chicken (+8.9%) increased at a slower year-over-year pace in August compared with July, contributing to the deceleration in grocery prices. On the other hand, consumers paid more for fresh or frozen beef (+11.9%), coffee and tea (+9.0%), as well as for sugar and confectionery (+10.9%). 

On a monthly basis, food prices were down 0.4% in August from July. 

Meanwhile, gasoline prices were up 4.6% in August alone, and 0.8% higher compared to a year earlier. 

In addition to facing higher energy prices, Canadians also paid more for rent and mortgage interest in August, StatsCan said. Moderating the all-items CPI were declines in prices for travel-related services, along with the smaller increase in food prices compared with the previous month.