Read more: Why the jury’s still out on inflation’s future trajectory
Bond markets responded favourably to the good-news surprise, Mattina noted, with yields moving lower across the Canadian yield curve even as U.S. Treasury yields moved higher. The Canadian dollar, meanwhile, lost roughly half a percent in the hours after the report and dipped just below 75 cents, the lowest since 2020.
Drilling into the CPI data shows Canadian shelter costs declined month-on-month, in line with the softening in the housing markets over the summer. That’s a crucial development, Mattina stressed, as shelter makes up 30% of Canada’s CPI basket and tends to be a sticky sub-element of the price index.
“It really differentiates Canada from the U.S.,” Mattina said. “In the U.S., we saw shelter costs continuing to rise significantly, even though housing markets are weakening on both sides of the border. So this is important to monitor in terms of the Bank of Canada making further progress on its inflation objective.”
Gasoline prices saw a steep 9.6% monthly decline in August, but that was offset somewhat by food prices shooting up by 10.8% annually, the fastest pace since 1981. The volatility in those two components, he said, underscores the importance of watching the core measures, which is what the BoC focuses on as it makes rate-hiking decisions.
