Canada's inflation rate eased for a second month in August on the back of lower gasoline prices, a development expected by investors as it indirectly gave confidence to the Bank of Canada that its interest rate hikes were effective.
The consumer price index rose 7% from a year ago, down from 7.6% in July and a four-decade high of 8.1% in June, Statistics Canada reported on Tuesday. Economists even expect a reading of 7.3%. In August, prices fell 0.3%, the biggest monthly decline since the beginning of the Covid-19 pandemic.
Inflation that excludes more volatile prices is also reported to be decreasing. The central bank's three main indicators fell to 5.23% from a revised reading of 5.43% in July.
According to Sal Guatieri, senior economist at the Bank of Montreal, with this the Central Bank of Canada is likely to adhere to the core measures that are in place.
The Canadian currency fell to trade at C$1.3308 per US dollar. Bond markets rallied, pushing the yield on the benchmark two-year debt down about 5 basis points to 3.802%.
While the figure is unlikely to affect bets on further rate hikes in the coming weeks, the drop suggests the BoC's rate hikes have cooled the economy and slowed demand enough to ease price pressures quickly.
Earlier in the month, Bank of Canada Senior Deputy Governor Carolyn Rogers said borrowing costs should rise further. He said the central bank will pay special attention to core inflation indicators.
The market is setting expectations on a 50 basis point hike on the Bank of Canada's decision next month, and another 25 basis point hike in December.
