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Canada’s Headline Consumer Price Index (CPI) saw an unexpected decline of 0.2% month-on-month in August, falling in line with a year-on-year return to 2.0%. Core Inflation measures also showed a downward trend, with the three-month core Inflation rate at 2.4%. The decrease in August’s CPI was driven by lower prices in discretionary goods and services like public transportation, recreation, clothing, and communications. This softening in consumer demand may impact the Bank of Canada’s assessment of Inflation risks, prompting a potential interest rate cut of 50 basis points on October 23. While shelter Inflation showed some resilience, with rent prices rising by 1% month-on-month, volatility may persist due to factors like new immigration limits. Despite some persistence in core Inflation risk over the next few months, further rate cuts are likely given the weakening economic activity in the United States and Canada.

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