Canada: Despite strong CPI headline, core inflation remains under control - NBF

The CPI rose 0.5% in Canada in July, above the 0.1% increase expected. Matthieu Arseneau, analyst at the National Bank of Canada, points out that the data above expectations is mostly due to intercity transportation.

Key Quotes:

“The CPI data was much stronger than expected. Headline annual inflation now stands at 3.0%, its highest level since 2011 and right on the higher bound of the central bank’s inflation target. CPI excluding food and energy, for its part is rising at its fastest pace since 2007.”

“July’s surprise increase was essentially driven to an atypical monthly surge of 15% in intercity transportation costs. The Bank of Canada’s preferred gauges which filter out such noises are running at a much tamer average annual pace of 2.0%.”

“Our inhouse replications of CPI-Trim and CPI-median are not showing acceleration on a 3-month annualized basis (respectively at 2.0% and 2.1%). This development remains consistent with an economy operating at capacity with higher interest rates to come.”

“With core inflation under control and assuming no significant upside surprise for Q2 GDP, there is no need to rush into a rate hike until we get more visibility on trade, global developments, and Canadian fiscal policy.”