Canada’s inflation rate, or more accurately its deflation rate, has been about the same for the past three months. In September, as just reported by Statistics Canada, the year-over-year all-items Consumer Price Index (CPI) change was -0.9%. It had been -0.8% in August and -0.9% in July. Prior to that, it was only slightly negative in June at -0.3% and still positive in May at +0.1%.

The Canadian (-0.9%) and U.S. (-1.3%) inflation rates are almost matching again. The strengthening in value of the Canadian dollar versus the U.S. dollar has played a minor role in this realignment so far. It will play a bigger role in the months ahead as import and export prices wend their ways through both economies. The core inflation rate in both countries is +1.5%.

Core inflation eliminates items (mainly food and energy related) that are most volatile in price. 

The energy sub-component index in Canada’s CPI is trending back to zero. In September, it stood at -18.7%. Its steepest drop was recorded two months before in July when it fell 23.4% on a year-over-year basis. July 2008 was when international oil prices reached their all-time peak.

Some interesting year-over-year price changes for Canadians include the following: the cost of human food (+2.8%), the cost of pet food, (+10.6%), home and mortgage insurance (+6.5%), homeowners’ maintenance and repairs (+8.0%), natural gas for residences (-33.0%), passenger cars (-5.9%), gasoline (-23.0%), and health care goods and services (+3.6%).  

Among the provinces, Saskatchewan (+0.2%) was the only one to record a year-over-year price gain. British Columbia had a large decline (-1.2%) due to the drop in energy prices and a particularly large downward adjustment in home replacement costs (i.e., housing prices).

The latest CPI results are no cause for worry as far as the Bank of Canada is concerned. Any thought that the economy may be heating up too quickly based on other economic data, such as the 31,000-job increase in employment in the latest month, have been put to rest. The 0.25% overnight interest rate will remain intact for a while.