Canada July CPI +3.0% vs +2.5% y/y expected

Author: Adam Button | Category: News

Canadian inflation data for July 2018:

  • Highest since 2011
  • Prior was 2.5% y/y
  • Prices up 0.5% m/m vs +0.1% expected
  • Prior m/m was +0.1% (unrevised)

Core numbers y/y:

  • Core common +1.9% vs 2.0% expected (and +1.9% prior)
  • Core median +2.0% vs +2.0% prior
  • Core trim +2.1%  vs +2.0% prior

Massive beat on CPI. USD/CAD drops to 1.3075 on the kneejerk.

" While continued strength in energy prices contributed most to the year-over-year increase, higher prices for various services, including air transportation and travel tours, also contributed to consumer price growth in July," Statistics Canada said.

  • Transportation index +8.1%
  • Energy costs +14.2%
  • Consumer prices for gasoline +25.4%
  • Purchase of passenger vehicles +2.0% y/y vs +1.8% prior
  • Services +3.2% y/y vs +2.2% prior                               

The story here is services. The energy stuff comes and goes but the services index jumped 1.1% m/m. Part of that is from travel-related stuff like tours and air transport, which could be fuel passing through but telephone services also rose (which could be a reversal of price promotions in May-June).

If you really wanted, you could probably explain this away as a series of one-off distortions and I'm somewhat sympathetic to that but the BOC is going to see a 3% number and rising services costs and err on the side of safety with a rate hike in Sept/Oct and potentially another one in December depending on how NAFTA negotiations go.

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