Consumer Price Index
The consumer price index (CPI) is a measure of the changes in the average price of a typical basket of goods and services purchased by consumers. The change in the CPI is the inflation rate. Higher inflation signifies a decrease in the ability of a typical consumer to purchase a fixed basket of consumer goods and services.
- Canadian headline or year-over-year inflation rate remained relatively low in the third quarter of 2020.
- The monthly headline inflation rate remained steady at 0.1 per cent in July and August before accelerating to 0.5 per cent in September 2020.
- Average prices increased in six of the eight major CPI sub-categories in September 2020.
- Notwithstanding the acceleration in the inflation rate, Canadian monthly headline inflation rate remained relatively low at below 1.0 per cent since the onset of the COVID-19 pandemic in March 2020.
Year-Over-Year Inflation Rate
The Canadian headline or year-over-year inflation rate, as measured by the year-over-year change in the Consumer Price Index (CPI), increased by 0.5 per cent in September 2020, following a rate of 0.1 per cent in the preceding two months of the quarter.
The acceleration in the headline inflation rate in September 2020 occurred due to, among other factors:
- the continued recovery in the global economy, which resulted in the gradual increase in the price of crude oil and gasoline; and
- the slower decline in the cost of air transportation (-3.2 per cent) in September 2020, which was less than -16.0 per cent recorded in the preceding month.
Both factors listed above resulted in a less downward pull on the inflation rate in September.
Despite the acceleration in the headline inflation rate in September, the Canadian inflation environment remained relatively low particularly since the onset of the COVID-19 pandemic in March 2020.
With the onset of the pandemic in March 2020, the headline inflation rate fluctuated between a high of 0.9 per cent in March and a low of -0.4 per cent in May. In the preceding 12-month period, the headline inflation rate ranged between 1.9 per cent and 2.4 per cent.
The headline inflation rate for Ontario and Toronto Census Metropolitan Area (CMA) also remained relatively low at a respective rate of 0.6 per cent and 0.2 per cent in September 2020.
Monthly inflation rate
The Canadian monthly inflation rate remained relatively low at 0.0 per cent in July 2020 and -0.1 per cent in August and September 2020.
In Ontario, similar patterns were observed as follows;
- July 2020: 0.1 per cent;
- August 2020: -0.1 per cent; and
- September 2020: -0.2 per cent.
In Toronto CMA, the monthly inflation rate was negative throughout the three months of Q3 2020 as reflected in the following:
- July: -0.1 per cent;
- August: -0.1 per cent; and
- September: -0.3 per cent.
Year-Over-Year Inflation Forecast
Current forecast suggests that Canadian headline inflation rate will remain relatively low and well below the Bank of Canada’s target inflation of 2 per cent, over the next two years as follows:
- 2020: 0.7 per cent
- 2021: 1.6 per cent