It’s the final data point in the final countdown to the Bank of Canada’s rate decision tomorrow.

The Consumer Price Index rose 1.9% year-over-year, its fifth straight month below the Bank of Canada’s target of 2%.

We think today’s reading is good enough to warrant a 25-basis point cut by the BofC – the first cut since March. Also lending support to our rate cut call is: 1) a softer labour market, including easing wage pressures; 2) a GDP contraction in Q2; 3) the recent removal of countertariffs; and 4) a gentle but steady downdraft coming from shelter costs.

So what could stop the BofC from cutting tomorrow? The inflation hawks will rightly point to still-stubborn core inflation. The Bank of Canada has said that underlying inflation is around 2.5% based on various metrics. So the Bank would be cutting without getting to 2% underlying inflation and there are still tariff pressures lurking. 

Yet even core inflation looks a tad better in recent months. Our preferred measure – the month-over-month annualized percent change in the three-month moving average (rolls right off the tongue) – has made some progress since June using both the median and trim measure and sits at about 2.5% (see chart). While the year-over-year readings are a bit more spicy at 3%, this largely reflects year-ago base period effects.   

Here are more inflation details.

Prime the pump - gasoline prices subtracting less. One of the reasons we’ve been told not to get too excited about sub 2% inflation in Canada is because it’s, in large part, driven by lower pump prices and in particular the removal of the retail carbon tax. For the Bank of Canada, they will look past these gas price gyrations as a temporary thing. In August, gasoline prices fell 12.7% year over year. But that’s smaller than the 16.1% y/y decrease in July, meaning that gasoline prices contributed to an acceleration in the annual inflation rate in August (the joys of second derivatives).

Seeking shelter - housing costs rising, just not as fast.  We’re keeping a close eye on shelter, as we think it could prove to be a more durable disinflationary force given lower asking rents in Canada, and continued declines in mortgage interest costs. Last month, the shelter index rose 2.6% y/y - the smallest since March 2021.

Sticker shock - Food is still pushing up the overall inflation rate. Food prices took off post-pandemic, and while the rate of growth has moderated, food is still putting upward pressure on headline inflation. Last month, food prices rose 3.4% year-over-year. Since the beginning of 2021, food costs have jumped a staggering 27%.

As for Alberta, the annual inflation rate was an even softer 1.4% last month. This is an energy price story, with Alberta seeing an even larger drop in gasoline and natural gas prices over the last year, while electricity prices also dipped. Excluding energy, the inflation rate was 2.7% – slightly above the national rate of 2.5%. Alberta’s headline inflation rate has fallen below the national average since April after spending all of 2024 above it.

Answer to the previous trivia question: Suncor and ATCO have announced a joint venture to build a hydrogen production facility near Fort Saskatchewan, Alberta, capable of producing 300,000 tons annually.

Today’s trivia question: What Canadian band has a song with the line “September 17, for a girl I know it’s Mother’s Day”?