by Gordon Isfeld
OTTAWA (MaceNews) – Canada’s consumer price index rose by 2.0% in July on a year-over-year basis, the same pace of gains as the previous month, with food and shelter costs fueling much of the increases.
The CPI reading on Wednesday was better than expected, with the key reading unchanged last month – and beating market expectations for a 1.7% reading in July.
July, compared to June, saw prices up 0.5%. In May, the month had declined 0.2% compared to April.
“This kept the annual inflation rate stuck right on the Bank of Canada’s 2% target rate for the second month running, and core trends stuck close to the figure as well – not at all a bad place to be,” said Douglas Porter, chief economist at BMO Capital Markets in Toronto.
“While a short-lived rebound in gasoline prices added about a tick to the monthly move, as expected, there were some clear upside sources of strength elsewhere.”
Meanwhile, the Bank of Canada’s preferred measures of core inflation, on a year-over-year basis, showed little change in July. The bank’s CPI-common reading was 1.9% last month, up from 1.8% in June. Both the CPI-median and CPI-trim were unchanged at 2.1%.
How these economic readings will play out in the coming months is uncertain – especially given recent concerns over a possible weakening in the global economy, a worry that often coincides with an historic pattern of recessions every 10 years or more.
But for now, the direction of the Canadian economy – both domestic and global – appears to be holding fairly steady. Still, there will be more than inflation data to digest this week.
Following on from Wednesday’s CPI report, new economic data will include June wholesale trade figures on Thursday – with many economists anticipating a second consecutive decline in activity. That report will be followed by retail sales numbers on Friday, also for June, and analysts are expecting a weaker performance in the auto sector.
“Inflation in Canada remains remarkably stable right around the Bank of Canada’s target, and looks to remain there for a spell. With their measures of core also holding tight around the target, inflation is giving the bank no free pass to trim rates, although it’s also not so high as to block the door completely,” said Porter, at BMO.
“Essentially, the decision on rates is going to come down to how the bank assesses the trade risks to domestic growth in the weeks ahead. At the very least, today’s high-side surprise dims the odds of a September surprise from the BoC, but October’s option remains open.”