Consumer prices rose 3.0% year-on-year in Canada in July, up from 2.5% in June and well ahead of median expectations for an unchanged print. Adjusted for seasonal patterns, prices rose 0.5% month-on-month.
Energy prices were a key contributor to inflation, up 14.2% over the past year, but the other big factor was air transportation (+28.2%). Air transportation rose 16.4% on the month – the highest month-on-month growth in nearly 30 years.
The Bank of Canada’s core measures were broadly unchanged. CPI-common and CPI-median remained at 1.9% and 2.0% respectively, while CPI-trim edged up to 2.1% (from 2.0% in June). The average of the three measures is now bang on 2.0%.
Key Implications
Headline inflation jumped unexpectedly in July. The jump in air transportation was a big factor, adding over 0.3 percentage points to price growth over the past year. This looks to be a one-off, reflecting the impact of higher fuel and labour costs on the airline industry.
The relative stability of core inflation measures may give the Bank of Canada some solace. Still, with an economy beating expectations and a range of indicators pointing to limited excess capacity, maintaining stable inflation is likely to require further rate hikes by the central bank with the next one likely coming in October.
