Canadian inflation eased in August amid a decline in gasoline prices, but economists are warning there’s a long way to go to get price pressures back to the Bank of Canada’s (BoC) two per cent target.

While headline inflation came in at seven per cent year-over-year in August – below the 7.3 per cent increase economists tracked on the Bloomberg terminal expected – that remains more than triple the Bank of Canada’s target rate, squeezing consumer budgets.

While gasoline prices fell 9.6 per cent in the month, Canadians were feeling pressures on everyday staples – grocery costs surged 10.8 per cent in the month, the largest increase in 41 years.

In a note to clients, TD Economics Managing Director and Senior Economist Leslie Preston said the latest inflation print was a small step in the right direction, but there’s still a long way to go.

“A journey of a thousand miles starts with a single step. Canadian inflation took a single step in the right direction in August, but it still has a long way to go,” she said.

“The BoC has hiked interest rates 300 basis points so far this year, and the impact of that is starting to be felt in the economy. Even still, we expect more slowing in demand, which should help bring down inflation along with it.”

TD, Bank of Nova Scotia and RBC all have the terminal rate – essentially the peak to the current rate hiking cycle – at four per cent, indicating another three-quarters of a percentage point of increases are in the cards. That would bring the Bank of Canada further into so-called restrictive territory, where its benchmark rate constrains consumer demand, and thus economic growth.

While inflation has moderated from its peak of 8.1 per cent, giving the Bank of Canada a modicum of breathing room, BMO Managing Director of Canadian Rates and Macro Strategist of Fixed Income Strategy Benjamin Reitzes said in a note to clients that it has only bought the central bank a bit of relief.

“Policymakers will breathe a modest sigh of relief, though they're miles from being out of the woods with inflation still nowhere near target,” he said.

“Inflation remains far too high, and the breadth of price increases hasn't backed off much, if at all. Nonetheless, the path to tamer inflation is going to be long and winding, and this is a step in that direction.”