Canada’s inflation rate

accelerated to 1.9 per cent in August, but a slight easing in core inflation could cement the case for a

Bank of Canada
interest rate cut

on Wednesday.

Headline inflation rose from 1.7 per cent in July in part because gasoline prices fell more slowly in August, Statistics Canada said on Tuesday. Taking out energy and food, the

consumer price index

rose by 2.4 per cent in August, down from 2.5 per cent the month before.

Measures of core inflation, which the Bank of Canada prefers to look at when making its monetary policy decisions, remained sticky in August but decelerated slightly in two of three categories. CPI-median rose by 3.1 per cent year-over-year during the month, the same as in July; CPI-trim rose by three per cent in August, down from 3.1 per cent the month prior; and CPI-common rose by 2.5 per cent last month, down from 2.6 per cent in July.

The Bank of Canada has held its policy rate at its three previous decisions, citing evidence of underlying inflation as one of the reasons. Prior to Tuesday’s CPI release, economists said barring any major surprises from the inflation data, they expect the central bank to deliver a quarter-point cut to its policy rate at its next decision on Wednesday. Economists have also cited higher unemployment and an economic contraction in the second quarter of this year, as reasons for the central bank to cut.

Andrew Grantham, senior economist at the Canadian Imperial Bank of Commerce, said Tuesday’s inflation data reinforces predictions for a cut on Wednesday and a second one in October.

“Core measures of inflation should continue to cool, given evidence of slack building in the economy and potentially some weaker prices related to the lifting of retaliatory tariffs in early September,” he said in a note. “We continue to forecast that the bank will cut by 25 basis points tomorrow and then again at the October meeting.”

At the last decision in July, Bank of Canada governor

Tiff Macklem

left the door open for further easing, if upward price pressures from trade disruptions are contained and a weakening economy puts downward pressure on inflation.

Michael Davenport, senior Canada economist at Oxford Economics, said the three-month trend in the monthly rate of core price growth has fallen below the Bank of Canada’s two per-cent target for the first time since last November.

“Overall, this should give the Bank of Canada a bit more confidence that underlying inflationary pressures are reasonably contained,” he said, in a note.

Still, not everyone is convinced, with Royal Bank of Canada economist Abbey Xu predicting it will be a “close call” for the central bank.

“The Bank of Canada will also have to consider upside inflation risks from sticky core inflation, resilient consumer spending, and planned fiscal stimulus that is likely more effective at addressing the targeted economic impact of trade-related disruptions than interest rate cuts,” she said in a note. “Today’s inflation report does little to sway that assessment, and we continue to think the Bank of Canada’s decision tomorrow will be a close call between a 25-basis point cut to the overnight rate and a hold.”

Food inflation continued to outpace headline inflation, accelerating to 3.4 per cent in August, from 3.3 per cent in July. That increase was driven by a surge in the price of meat, which rose by 7.4 per cent last month, compared to an increase of 4.7 per cent in July. The price of fresh vegetables bucked the trend, falling by 1.1 per cent during the month, with consumers paying less for grapes, berries and other fresh fruit.

Growth in rent at 4.5 per cent and mortgage interest costs at 4.2 per cent were the main upward contributors to the year-over-year change in CPI for August. The price of passenger vehicles also rose by four per cent on a year-over-year basis.

The main downward contributors to CPI in August were price declines in gasoline, travel tours and air transportation.

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• Email: jgowling@postmedia.com