Canada printed another batch of weaker than expected inflation figures, as the headline CPI slowed from 2.5% to 2.0% year-on-year in August – its lowest reading since February 2021.
On a monthly basis, the headline CPI is down 0.2% versus the consensus of a flat reading and the previous 0.4% uptick. Meanwhile, the core reading fell 0.1% month-on-month while the annual core CPI dipped from 1.7% to 1.5% in line with expectations.
Other measures of inflation mostly fell short, with the trimmed CPI dropping from 2.7% to 2.4% year-on-year and the common CPI dipping from 2.2% to 2.0% on an annual basis versus expectations of no change.
Link to Canada’s Consumer Price Index Report (August 2024)
Components of the report revealed that the deceleration in headline CPI was mostly due to lower prices of gasoline for the month, even as rent and mortgage interest costs picked up in August. A decline in air transportation, travel tours, clothing and footwear prices also contributed to the weaker monthly print.
Still, consumers paid 2.4% more for food from stores in August, following a 2.1% increase in July. This was reportedly due to a base-year effect, as dairy products saw a 3.3% year-on-year jump in prices while fresh fruit was 1.5% more expensive compared to August 2023.
Market Reactions
Canadian Dollar vs. Major Currencies: 5-min
Overlay of CAD vs. 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, broke out in different directions upon seeing the numbers come in the red.
CAD popped sharply higher versus JPY, which was already on slightly weaker footing just a few minutes before the inflation report was printed, while also chalking up gains against NZD, CHF, and AUD. It also recovered against USD, as the dollar sold off prior to the report as traders probably adjusted positions ahead of the U.S. retail sales release as well.
Although the Loonie initially dipped against the euro and sterling when the Canadian CPI was released, it quickly got back on its feet and held on to its gains and more in the hours that followed. The Aussie, on the other hand, pared its losses against the Canadian currency roughly an hour after the report.