Canada’s inflation rate eases to 7.6% in July on gasoline

Canada’s annual inflation rate slowed to 7.6% in July, a two-month low but still far above the Bank of Canada’s 2% target, as gasoline prices eased, Statistics Canada data showed on Tuesday.

Analysts polled by Reuters had expected the annual rate to fall to 7.6% in July from 8.1% in May.

COMMENTARY

JAY ZHAO-MURRAY, MARKET ANALYST AT MONEX CANADA

“Today’s CPI data is a bit of a mixed bag. The headline data looks pretty good, considering monthly inflation came in close to flat, as expected … It’s probable that the figure that the average Canadian will pay the most attention to has peaked.

“The problem for the Bank of Canada, however, is that even though gasoline prices pulled back, there were nevertheless broad-based price increases in most of the CPI basket, which led the average of the Bank of Canada’s preferred measures of core inflation to hit a record high of 5.3%, which means that there will in all likelihood be some continued momentum in price pressures for the months to come.

“The good headline, bad story means that on the margin, this report makes a 75-basis-point hike from the Bank of Canada more likely, since it indicates that more demand destruction is needed to really tamp down inflation.”

STEPHEN BROWN, SENIOR CANADA ECONOMIST, CAPITAL ECONOMICS
“The fall in headline inflation to 7.6% in July left it lower than the Bank of Canada’s recent forecast but, amid continued upward pressure on core prices, the Bank may still opt for a 75-basis-point interest rate (increase) in September rather than the 50-basis-point move now largely priced into markets.”

JIMMY JEAN, CHIEF ECONOMIST AT DESJARDINS GROUP
“It does confirm the fact that inflation peaked, actually, in June at 8.1% – at least that’s what we think – and now we’re seeing some lower prints. We think it’s going to continue to remain elevated. It’s going to be slow to really come down going forward. But you know, the details were much in line with what we thought, some with some weakness coming in the form of gasoline. In particular, that was a big factor behind the tame print. It’s also what we saw in the U.S. So July saw lower energy prices. And at the same time, we have very sticky core measures. So core measures continue to actually accelerate. And that’s a function of how the measures are constructed. But it was the same message in the U.S. It was it was kind of sticky. So I think on the core front that it’s going to take more time, given the domestic pressures for that one to really show signs of stabilization.

“We think (the Bank of Canada) has another supersize hike in store. Another 50 basis points is what we expect for September. I don’t think there’s a much in that report that changes that assessment. I think (the central bank) still wants to see better, more convincing signs and certainly a sequence of improvement before being ready to kind of pause. I don’t think we’re at that step.”

MICHAEL GREENBERG, SVP AND PORTFOLIO MANAGER, FRANKLIN TEMPLETON INVESTMENT SOLUTIONS
“There is some proof when looking at the headline number that inflation is somewhat peaking, but I think a lot of that is driven by some of the more temporary factors like energy prices.

“The alphabet soup of other CPI measures that the Bank of Canada really cares about – the common, the median, the trim – those are still suggesting that inflation pressures are rising… I think it maybe suggests that some of the peak of inflation is getting close to being behind us, but the level of inflation is probably still concerning to the Bank of Canada and suggests that they’re not done yet (hiking interest rates).”