Canadian consumer price inflation continued to be stable at 2 percent on a year-on-year in July, above consensus expectations of a deceleration to 1.7 percent. Sequentially, seasonally adjusted prices were up a strong 0.4 percent.
Monthly price gains were led by recreation and education. Price gains for multipurpose digital devices was the main source of price pressure in the recreation index. Statistics Canada notes that the introduction of unlimited cell phone contracts has shifted more of the cost of devices onto consumers.
Transportation was another big gainer. Increased prices for air transportation were once again a main driver. This has been a considerably volatile component of the CPI over the last two years and outsized gains should be taken with a grain of salt.
Two of the three Bank of Canada core inflation measures remained the same in July. CPI-median and CPI-trim both came in at 2.1 percent, same as in June. Meanwhile, the CPI-common measure rose to 1.9 percent from 1.8 percent. On average the measures still sit at 2 percent.
Inflation came in above expectations, but some volatility in underlying components imply little to worry about on a trend basis, noted TD Economics in a research report. With inflation in line of the central bank’s target and wage growth now showing some life, the Bank of Canada should be pleased with its recent performance in maintaining stable price growth.
“We have heard little from Bank of Canada officials over the past month despite the whirlwind of developments on the global front and reaction in financial markets. Market expectations are for at least one rate cut before the end of the year. The actions of the Federal Reserve loom large on this front. More rate cuts stateside will increase the communication challenge for the Bank of Canada. Conservative expectations for economic growth appear to be part of the communication strategy. The central bank has set a low bar for growth to jump over, suggesting a high bar for them to move off their current monetary stance”, added TD Economics.
