The August Consumer Price Index (CPI) report breached the Bank of Canada (BoC) upper bound. Statistics Canada (StatCan) data shows CPI accelerated further in September. A regional breakdown reveals that only two provinces are below the national average. Headline growth is well above the BoC’s target rate, but some provinces have more than doubled that rate.
Canadian Inflation Accelerates, Already Past BoC Upper Bound
Canadian CPI annual growth.
Source: StatCan.
Annual growth of CPI accelerated to 3.1% in September, up from 3.0% in August. The outsized impact of soaring gas prices continues, with CPI ex-gasoline at just 2.2% over the same period. The agency further notes that only 3 of 8 major components saw prices accelerate too.
The headline data makes it easy to conclude this is only an energy story. However, a regional breakdown of CPI makes it clear that basket distortions are in play. Only two provinces have seen a rate lower than the national average.
Atlantic Provinces Over 2x BoC Target, Only 2 Provinces Below Average
Source: StatCan.
Despite being above the Bank of Canada (BoC) upper bound of 3.0%, CPI may be skewed by its modelling. A quick look at the provincial breakdowns, and we see Ontario (+2.5%) is the only province below the threshold. Add BC (+3.0%) to the mix, and we get the only two provinces lower than the national average. The rest of Canada isn’t quite this lucky—especially out east.
CPI’s highest growth is almost exclusively concentrated in Atlantic Canada. PEI’s annual growth of 5.7%—approaching triple the BoC’s target of 2%—is the highest in the country. Not far behind are Nova Scotia (+5.6%), New Brunswick (+5.0%), and Newfoundland and Labrador (+4.7%). The Prairies aren’t much better off either—Manitoba (+4.4%), Alberta (+3.6%), and Saskatchewan (+3.3%) are above the national average too.
It’s not just gas, either. CPI ex-gasoline remained elevated in Nova Scotia (+4.4%), PEI (+3.9%), and New Brunswick (+3.4%). The agency separately notes “… rent prices rose the fastest in Atlantic Canada,” which can help explain some of the distortion.
Energy and Shelter Are Among The Biggest Drivers of CPI
The biggest driver of annual growth remains energy, with 19% annual growth. The sector is driven by a 27.8% surge in gas, along with a 57.8% jump in fuel oil. Considering energy is an input cost for everything, its surprising growth isn’t broad.
Shelter accelerated 1.8%, driven by home/mortgage insurance (+4.9%) and rent (+2.8%). The sector was moderated by falling replacement costs (-1.9%), tied to the cost of building new homes. It was dragged further by mortgage interest (-0.2%), which is likely to be news to brokers considering yields.
In short, Canada’s headline inflation is running hot—and the national average is weak in contrast to what most households are experiencing.
