Core inflation, computed as the average of the three price measures preferred by the Bank of Canada (trim, median, and common), increased an annualized 5.23 percent – close to the 5.3 percent expected in markets, and down from July’s revised 5.43 percent as costs rose across a broad range of economic sectors. Core measures strip out highly-volatile categories, and are often used to develop a better understanding of price pressures in the underlying economy.

As expected, shelter cost growth continued to slow, up 6.6 percent year-over-year, but down from 7 percent in the prior month as home prices slumped.

Gasoline prices dropped -9.6 percent month-over-month and the overall energy sub-index fell -6.5 percent.

Food prices were up 9.8 percent relative to the prior year, down from the 9.9 percent annual increase posted in July.

The statistical agency noted, “average hourly wages rose 5.4 percent on a year-over-year basis, meaning that, on average, prices rose faster than wages”, and “Although Canadians experienced a decline in purchasing power, the gap was smaller than in July”.

The loonie is trading lower, but the reaction looks relatively subdued after last week’s US inflation surprise prepared traders for a broader range of outcomes. Swaps pricing suggests markets still expect the Bank of Canada to raise rates by another three quarters of a percentage point by the end of the year, but odds on a pivot in 2023 are rising as the economy cools.

Karl Schamotta, Chief Market Strategist