Canadian CPI Preview For July: Inflation Build-up Continues


The 0.5% month-over-month real GDP gain in June and the 54,000 net job creation in July clearly show that the Canadian economy has momentum. Our economy is running at full capacity. Combined with the pass-through of Ontario’s steep minimum-wage increase on housekeeping and restaurant prices, higher CPI inflation should not be a surprise. Core CPI inflation measures averaged 2.0% between February and June 2018, after running below 2% in 2017. Total CPI inflation rose from 2.2% to 2.5% during this recent period, the longest stretch, since 2014, for which inflation was above the 2% Bank of Canada (BoC) target.

This on-going build-up in CPI inflation is likely not over yet. We forecast a 0.2% month-over-month increase in total CPI for the month of July (consensus at +0.1% m/m) based on higher energy prices and shelter costs. The report will be released on Friday morning. Our estimate also includes the modest impact of the retaliatory counter-measures adopted by the federal government against the U.S. steel and aluminum tariffs on a few CPI sub-components, including housing operations and furnishing, food and recreation. If our call turns out to be right, total CPI inflation will have accelerated further to reach a 7-year high of 2.7% in July (see chart).

An elevated 2.7% CPI inflation figure should normally benefit investors who are exposed to Canadian real return bonds. A 2.7% inflation rate would also be close to the upper bound of the 1 to 3% range, and confirm the growing market view that another BoC rate hike is coming this fall. This being said, we do not see the need for the BoC to hike prematurely at its Sept. 5th meeting. Since the BoC just raised its policy rate to 1.50% at its mid-July meeting, another 25 basis points so soon would not really be in line with the “gradual approach” promoted by the BoC regarding its strategy for withdrawing monetary stimulus. Furthermore, 25% auto tariffs from the U.S. remain a threat that warrants patience. Thus, the overnight rate target is more likely to increase at the Oct. 24th or Dec. 5th meeting.

Canadian CPI

Canadian CPI

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.



Source link



Leave a Reply

error: Content is protected !!