Canada: Upside surprise in inflation – TD Securities

According to analysts at TD Securities, Canadian CPI was materially stronger than expected in July, with the index rising by 0.5% m/m and the year-ago pace of inflation holding steady at +2.0% y/y.

Key Quotes

“The upside surprise can be mostly explained by increases in travel costs; the public transportation index increased by 9.5% m/m reflecting a 14% increase in the cost of air transportation while the travel services component posted a 7.0% increase in July.”

“All told, those two components contributed 0.37 p.p. to the headline monthly increase. Gasoline prices increased by 3.3% in July, adding another 0.1 p.p. to the monthly increase in headline CPI. From that perspective, inflationary pressures do not look broadly based, with only 5 of 8 sectors seeing price increases on the month.”

“The core inflation metrics were substantively unchanged, with the CPI-common ticking higher by 0.1 p.p. to 1.9%, while the CPI-trim and median measures were both unchanged at 2.1% following revisions.”

“Even if the upside surprise this month was principally due to one-off factors, core inflation at 2.0% does point to a modicum of stability in the domestic economy (especially paired with Q2 GDP growth of roughly 3.0%). Today's CPI figures therefore argue against knee-jerk rate cuts in September.”