- Consumer price inflation remained steady at 2.0% year-on-year in July, ahead of the consensus forecast for a deceleration to 1.7%. Month-on-month, seasonally adjusted prices were up a robust 0.4%.
- Monthly price gains were led by recreation and education (+0.9% month-on-month). 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. More for phones, less for data in other words.
- Another big gainer on the month was transportation. Increased prices for air transportation were once again a key driver. This has been a significantly volatile component of the CPI over the past two years and outsized gains (and contractions) should be taken with a grain of salt.
- Two of the three Bank of Canada core inflation measures were unchanged in July. CPI-median and CPI-trim both sit at 2.1%, where they were in June. Meanwhile, the CPI-common measure edged up to 1.9% from 1.8% in June. On average the measures still sit at 2.0%.
Key Implications
- Inflation came in ahead of expectations in July, but some volatility in underlying components suggest little to worry about on a trend basis. With inflation (both headline and core) bang-on the Bank of Canada’s 2.0% target and wage growth now showing some life, the Bank of Canada should be pleased with its recent performance in maintaining stable price growth.
- The biggest threats to this stability come on the external front. Should global conditions continue to deteriorate, the likelihood of the Bank of Canada acting to insure against downside risks will increase.
- 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.
