EconoFACTS

August 20, 2024 | 09:13

Canadian CPI (July) — Summer Core Cooling

Economist

Managing Director, Canadian Rates & Macro Strategist
Fixed Income Strategy

Benjamin has been with the Bank of Montreal nearly two decades. He is re-sponsible for the Canadian macro-econom... (Read more)

Benjamin Reitzes

Managing Director, Canadian Rates & Macro Strategist
Fixed Income Strategy

Benjamin has been with the Bank of Montreal nearly two decades. He is re-sponsible for the Canadian macro-econom... (Read more)

Canada's CPI rose 0.4% (+0.3% seasonally adjusted) and 2.5% y/y in July, bang on the consensus call. Most sectors were close to expectations. One notable soft spot was recreation, with travel services rising about half the seasonal norm. Indeed, recreation prices are now below year-ago levels (-0.2% y/y) for the first time since the pandemic-driven plunge. Airfares performed similarly, climbing less than usual, leaving prices down 2.7% y/y. Alcohol and tobacco were soft as well. It appears as though there's some thematic softness in discretionary items, consistent with consumers' ongoing struggles. Shelter also saw its smallest increase in 17 months, as rent growth remained subdued and a small acceleration in mortgage interest cost was offset by lower home prices (and other weakness in the category). A 2.4% m/m rise in gasoline prices contributed to the firm headline reading, while food prices saw a modest gain, trimming the yearly rate a tick to 2.7%.

The core inflation figures were very encouraging, with the Trim and Median CPIs both up 0.1% m/m. That cut the yearly rates one-to-two ticks to 2.7% and 2.4%, respectively, the lowest since April 2021. Short-term inflation metrics also headed in the right direction, with the three-month rates both easing to 2.7% and six-month rates holding just above 2%.

Key Takeaway: The July CPI report should further cement a 25 bp rate cut from the Bank of Canada in September. There's no urgency for policymakers to act more aggressively at this point, but rate cuts will keep coming as inflation continues to move toward 2% and the economy sports a sizeable output gap.

Table 1 - Canada — CPI

(month/month % change)

Source: BMO Economics, Haver Analytics