Morning Market Brief: September 20, 2023

Canadian inflation accelerates in August?

Statistics Canada reported the annual inflation rate in Canada moved higher in August. Two straight months of rising inflation suggest the Bank of Canada’s (BoC) fight against inflation continues. While the BoC paused at its last meeting, it has been clear that it would be willing to raise interest rates again if conditions warrant such action.?

• Canada’s year-over-year inflation rate was 4.0% in August, an increase from the 3.3% rate posted in July. Based on a survey from Bloomberg, economists were expecting Canada’s annual inflation rate to reach 3.8%.
• Gasoline prices edged higher by 0.8% on a year-over-year basis, contributing to the higher inflation rate in August. Over the last several months, gasoline prices had fallen year-over-year. Oil prices surged higher over the summer partly due to the Organization of the Petroleum Exporting Countries cutting supply.
• Sharper growth in rental costs in August compared to July also helped push inflation higher. Food prices were another critical contributor, rising by 6.8% year-over-year, but down slightly from the 7.8% increase in the previous month. Higher food prices have weighed on Canadians.
• Core inflationary pressures remained elevated. The core inflation rate, which excludes more volatile items such as energy and food, remains high, suggesting broad-based price pressures persist. The BoC monitors core inflation closely in its interest-rate decisions.

The BoC has a lot of economic data to digest before its next meeting on October 25. Inflation remains elevated, the labour market is robust, but economic activity is slowing considerably. No matter what the BoC’s next move is, it is unlikely to drop interest rates, particularly in the short term. The S&P/TSX Composite Index dropped considerably yesterday, and volatile conditions could persist. Ensure your portfolio is diversified and has exposure to defensive stocks and sectors that might be able to withstand any significant pullbacks in equity markets.

At?CIBC Private Wealth, we aim to take a comprehensive approach to managing, building and protecting your wealth. If you'd like to discuss this market and economic update in more detail, please get in touch with your advisor any time.