Canadian inflation slowed to 7 per cent in August, Statistics Canada said on Tuesday, even as food prices increased at the fastest rate in 41 years.
August's Consumer Price Index (CPI) marks the second consecutive deceleration and was less than the 7.6 per cent year-over-year jump recorded in July. The slowdown was largely driven by lower gasoline prices, which increased 22.1 per cent annually compared to a 35.6 per cent yearly increase in July. On a monthly basis, gas prices fell 9.6 per cent, marking the largest monthly decline since April 2020.
With gasoline stripped out, prices in August increased 6.3 per cent annually, the first month since last June that inflation has slowed. On a monthly unadjusted basis, CPI fell 0.3 per cent, the largest monthly decline since the early months of the COVID-19 pandemic.
Statistics Canada says transportation and shelter prices also contributed to the deceleration in consumer prices, but were moderated by higher grocery prices. Food purchased from stores increased 10.8 per cent last month, the fastest increase since Aug. 1981.
"The supply of food continued to be impacted by multiple factors, including extreme weather, higher input costs, Russia's invasion of Ukraine, and supply chain disruptions," the agency said in its release on Tuesday.
The increase in food prices was broad-based. On an annual basis, bakery products were up 15.4 per cent, fresh fruit up 13.2 per cent, sugar and confectionery up 11.3 per cent, fish, seafood and other marine products up 8.7 per cent, dairy products up 7 per cent, and meat was up 6.5 per cent.
While inflation has slowed, it is still well above the Bank of Canada's target of 2 per cent and economists say that further interest rate hikes will continue. After issuing a 75 basis point hike on Sept. 7, the central bank's key interest rate sits at 3.25 per cent, the highest level since April 2008.
"Canadian inflation took a single step in the right direction in August, but it still has a long way to go," TD Economics senior economist Leslie Preston wrote in a note on Tuesday.
"There is a long journey ahead, and we expect the Bank of Canada to continue hiking its policy rate at the end of October, and take the policy rate to 4 per cent by the end of the year."
In its most recent policy decision, the Bank of Canada warned that its benchmark rate will need to rise further "given the outlook for inflation." The central bank also noted that core measures of inflation, excluding gasoline, continued to increase, and that surveys suggest short-term inflation expectations remain high.
"The path to tamer inflation is going to be long and winding, and this is a step in that direction," BMO Capital Markets managing director Benjamin Reitzes wrote in a research note.
"While there's still plenty of data to go before the next Bank of Canada policy decision, today's number will, for now, limit how much further tightening the market prices."
The Bank of Canada has been aggressively raising interest rates since March, hiking its benchmark rate by 300 basis points as it attempts to rein in soaring inflation.
Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.