09:10 AM EDT, 09/17/2024 (MT Newswires) -- Canadian headline prices stagnated in August, meaning the annual rate slowed from 2.5% in July to 2.0% in the latest report, meaning that's the coolest inflation reading since February 2021, said Desjardins.

Falling energy prices were a major driver of the deceleration reported Tuesday, with gasoline down 2.6% on the month and 5.1% over the past year. Total inflation is now tracking materially below the Bank of Canada's last forecast.

Excluding food and energy, prices were up just 0.1% for the second month in a row in seasonally adjusted terms. Clothing prices were extremely soft as retailers were forced to offer more and larger discounts to entice spending, noted the bank.

Shelter prices rebounded from a welcome slowdown in July on a significant reacceleration of rent inflation. Shelter prices remain a sore spot, but that won't stop officials from becoming more aggressive, stated Desjardins. Indeed, the share of categories with prices rising above 3% per year fell to 27% from 30%, which is below the long-term average.

The average of the BoC's two preferred core measures decelerated to 2.4% year over year, indicating there's some downside risk to the central bank's recent core inflation forecast, according to Desjardins. The average of the three-month annualized rates also decelerated to 2.4% from 2.8% in the prior month.

In addition, the average of the bank's bias-adjusted core median and trimmed mean metrics declined to 2.1% from 2.3% in July. Core services excluding shelter inflation also slowed to 2.5% from 2.8% in July.

Now that inflation is back on target, it's time for Canada's central bank to accelerate the pace of rate cuts. Desjardins expects central bankers to slash their policy rate by 50 basis points next month to expedite the return to a more neutral setting.

Financial markets are still only placing a 50% probability on a non-standard reduction in October, but there's no reason to wait for December after seeing these numbers. Desjardins predicts market pricing to move further in the coming days after the United States Federal Reserve is out of the way.