- Headline inflation rose 0.5% m/m, 2.0% y/y
- The BoC’s core measures still average 2.0%
A surge in July airfares (a 14% increase from June) was to blame for a big chunk of what was a stronger-than-expected month-over-month headline price increase. But airfares jumped a similar amount last year in July as well. The gains have more to do with a new methodology for the component implemented more than a year ago than an underlying change in price growth.
Looking through monthly wiggles, underlying inflation trends still look pretty solidly anchored around the Bank of Canada’s 2% target rate. The headline index was up 2.0% year-over-year. Excluding food & energy products, prices were up 2.2% from a year ago. Probably most importantly for future Bank of Canada policy decisions, the central bank’s preferred ‘core’ measures averaged 2.0% once again – extending the tight 1.9%-2.1% range since February 2018 for another month.
The odds of the Bank of Canada following the US Fed and other global peers with lower interest rates have increased as the US-led trade war with China has intensified – with risks if anything tilted to an earlier move than the 25 basis point cut in early 2020 we have penciled in. Nonetheless, near-term price and economic growth trends still look too strong for the BoC to justify a rate cut immediately, and that hasn’t changed with today’s inflation report.
