- Canadian consumer price inflation slowed to just 0.1% on a year-on-year (y/y) basis in July, down from 0.7% in June. The reading came in well below the consensus forecast for 0.5%.
- The slowing in the year-on-year metric was fairly widespread, but was led by air transportation prices, which went from +8.1% y/y in June to -8.6% in July. Statistics Canada reported that “airlines were offering various incentives such as reduced fees, discounts and promotions to encourage a return to travel.” Travel accommodation prices were also down steeply (-27% y/y, down from -25% in June).
- On a seasonally adjusted basis, prices edged down by 0.1% in the month, following a 1% gain in June. Recreation, reading and education prices led the drop, down 2.3% on the month – this includes traveler accommodation noted above. On the other side of the ledger, clothing and footwear prices were up 1.8%, slowing from a 2.9% gain in June. Food price growth stalled in the month as prices for beef fell as production in the industry normalized.
- Two of three of the Bank of Canada’s core inflation measures edged lower in the month. CPI-trim fell to 1.7% (from 1.8%) and CPI-common to 1.3% (from 1.4% and the lowest reading of this measure since January 2017). CPI-median was unchanged at 1.9%.
Key Implications
- The impact of COVID-related shutdowns is dissipating from much of the data, but its impact can still be seen clearly in prices for air-travel and travel accommodations. These are volatile categories which have, in recent years, accelerated in the summer months, but did the opposite this year, accentuating the weakness.
- The tug of war on inflation moving forward will be between potential discounts needed to attract buyers in a still-demand constrained economy, versus the higher costs of operation due to maintaining social distancing and personal protective equipment. This month, the discounts definitely won out, pushing inflation almost back to zero.
