Canada's Q3 Growth and Inflation Dynamics

Inflation and growth readings will further inform the debate over risks facing the Canadian economy and monetary policy next week. Wednesday's manufacturing sales print for July should post a solid rise and reinforce an upward trend in activity measures in the current quarter. There are at least two reasons for this. One is that new orders picked up in June after prior weakness and this might translate into more product going out the door in July. Two is that we already know the export figures for July, and the manufacturing-related categories were very strong but not uniformly so. Exports of autos and parts soared by 9.9% m/m and other transportation equipment including volatile aircraft shipments rose by 19.2%. Offsetting the optimism, however, were declines in other categories including most of the resources except agriculture & fishing, and electronic equipment and parts. 

The day before will bring out home resales for August. So far, we only have a few of the major cities and the local real estate boards generally don't seasonally adjust their figures. That adds an extra element of uncertainty since different regions of the country likely experience somewhat different seasonal patterns; hence why no one submits consensus estimates. The Greater Toronto Area reported sales up 5.7% y/y but down in August over July as per the seasonal norm. Sales in the Metro Vancouver region climbed by 21.3% y/y in August but were seasonally lower by 15.5% over the prior month. Calgary's market posted a 27% y/y plunge in home sales and early month-to-date tracking for sales in September suggests that the weakness is continuing. 

And then finally Friday offers up a fresh inflation print. We're still several months away from when base effects through the drop in oil prices begin to put upward pressure on year-ago headline CPI inflation readings. In the meantime, the focus will remain upon core inflation which has been running at its hottest rate in about seven years. Core inflation has been running between 2.1-2.4% y/y over recent months so it would likely take a material trend break out of that range to matter much in the short-term versus dismissing movement as noise.