Date: September 21, 2010 Canadian Consumer Price Index, August 2010 Results Source: Statistics Canada Link to Release: http://www.statcan.gc.ca/daily-quotidien/100921/dq100921a-eng.htm Summary: Canada’s Consumer Price Index (CPI) – the most commonly

quoted measure of price inflation – increased by 1.7 per cent year-over-year in

August after a 1.8 per cent annual increase in July. The August result was

driven largely by a five per cent rise in energy prices, but prices were higher for

seven of the eight major index components. The Bank of Canada’s Core CPI,

which strips out the most volatile components in the index, climbed 1.6 per

cent in August. The annual rate of inflation was highest in Ontario, where a 2.9

per cent increase in prices was experienced. The annual CPI increase in

Ontario was driven by higher prices for gas, electricity, passenger vehicle

insurance premiums and estimated homeowner's replacement costs.

Analysis: Annual growth in both the “All Items” and “Core” Consumer Price

Indices were below the Bank of Canada’s projection for the third quarter. With

this in mind, the latest CPI release adds fuel to the interest rate debate in

Canada. The calls for the Bank of Canada to halt interest rate hikes until we

have a better idea of the economic growth trajectory in Canada will likely

become louder. The argument will be that with inflation below the two per cent

target we are not experiencing strong upward pressure on consumer prices, so

there is no need to hike rates in order to slow spending. However, in recent

statements the Bank has argued that consumer and business spending is in

line with expectations. This suggests that the Bank may still be considering

further rate hikes this year and/or in 2011.

-2%

-1%

0%

1%

2%

3%

4%

Source: Statistics Canada

Canadian Consumer Price Index (CPI)Year-Over-Year Per Cent Change

CPI Annual Per Cent Change

Core CPI (Bank of Canada) Annual Per Cent Change

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

Source: Statistics Canada

Canadian Gasoline Price (CPI Component)Year-Over-Year Per Cent Change

Written By:

Jason Mercer

TREB Senior Manager of Market Analysis.

jmercer@trebnet.com