Ottawa September 19 2023: The Consumer Price Index (CPI) rose 4.0% year over year in August, following a 3.3% increase in July due to increase in fuel prices, a sign the central bank may be forced to raise interest rates yet again after 10 hikes since March of last year.
The annual rate, the highest since the 4.4% reported in April, is double the Bank of Canada's 2% target. The headline acceleration was largely the result of higher year-over-year prices for gasoline in August (+0.8%) compared with July (-12.9%). Excluding gasoline, the CPI rose 4.1% in August, matching the 4.1% increase in July.
In addition to facing higher energy prices, Canadians paid more for rent and mortgage interest in August. Moderating the all-items CPI were declines in prices for travel-related services and a smaller increase in food prices compared with the previous month.
On a monthly basis, the CPI was up 0.4% in August, following a 0.6% gain in July. The monthly slowdown was mainly driven by travel tours (-6.4%) and air transportation (-6.9%), as prices fell month over month following the peak of summer travel demand in July. On a seasonally adjusted monthly basis, the CPI rose 0.6%.
Gasoline prices increase year over year, the first yearly gain since January 2023
Gasoline prices rose 0.8% year over year in August, the first yearly increase since January 2023, after falling 12.9% in July. The year-over-year gain in the gasoline index was partly driven by a base-year effect, as prices fell 9.6% month over month in August 2022, resulting from higher global oil production and lower refining margins.
On a monthly basis, gasoline prices rose 4.6%, also contributing to the year-over-year increase in August 2023. The month-over-month gain was mainly the result of higher prices for crude oil following production cuts from major oil-producing countries.
Shelter prices accelerate, led by rent
Shelter prices were up 6.0% on a year-over-year basis in August, after increasing 5.1% in July. Faster growth in shelter prices was led by the rent index, which rose 6.5% year over year nationally, after a 5.5% gain in July. Among other factors, a higher interest rate environment, which may create barriers to homeownership, put upward pressure on the index. While rent prices accelerated in eight provinces, those with the fastest price growth were Newfoundland and Labrador (+8.4%), Alberta (+6.5%), Nova Scotia (+9.5%) and Manitoba (+6.1%).
The mortgage interest cost index also contributed to the acceleration in shelter prices, rising at a slightly faster pace in August (+30.9%) compared with July (+30.6%).
Price growth for groceries slows, but remains elevated
Although year-over-year price growth for groceries slowed in August, price levels remained elevated. On a year-over-year basis, prices for food purchased from stores rose 6.9% in August compared with an 8.5% increase in July. On a monthly basis, prices for groceries were down 0.4% in August.
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. Conversely, consumers paid more for fresh or frozen beef (+11.9%), coffee and tea (+9.0%), as well as for sugar and confectionery (+10.9%).
Energy prices increase the most in Alberta
Among the provinces, energy prices rose the most in Alberta, increasing 13.3% year over year in August, following a 7.7% decline in July. Along with gasoline, prices for natural gas and electricity contributed to the acceleration amid high summer demand.
In Alberta, natural gas prices fell to a lesser extent on a year-over-year basis in August (-12.5%) compared with July (-32.7%), putting upward pressure on the index.
Following a large price increase in July, electricity prices rose 121.7% year over year in August. During the period of high demand in the summer of 2022, provincial rebates kept prices lower for consumers. These rebates were gradually phased out and ended in spring 2023.