September 16, 2020 | 09:12
Canadian CPI (Aug. 2020) — Still Subdued
Canadian CPI fell 0.1% in August, bang on our below consensus call. That kept yearly pace steady at +0.1% y/y. Note that August is a seasonally weak month for prices, which left the prices up 0.1% on a seasonally adjusted basis. There was weakness in a few notable categories which weighed on CPI. Food prices slipped 0.3%, trimming the annual increase to 1.8%, the slowest pace in nearly two years and continuing to unwind the initial COVID-related surge in April. Auto prices dipped 1% for a second straight month, and gasoline fell 0.8%. One other area of softness was communication prices, with phone and internet prices down for the fourth time in five months.
The Bank of Canada's core CPI measures were mixed, with the common measure moving up two ticks to 1.5% y/y, while the trimmed mean was steady at 1.7% and the weighted median held at 1.9%. That moved the average of the three measures up a tick to 1.7%, marking a seventh straight month below the 2% target. And, with a massive output gap likely putting downward pressure on prices at least well into next year, inflation is expected to stay muted.
In a separate release, foreign investors sold a net $8.5 bln in Canadian securities. The divestment was entirely in bonds, with big selling in corporate debt, while there were small net inflow in money markets and equites. And, Canadians bought a net $1.3 bln in foreign securities, with the buying focused on U.S. equities.
Key Takeaway: Headline inflation remains extremely subdued. Interestingly, that's a big divergence from the acceleration we've seen in the U.S. over the past three months. Indeed, the spread between Canadian and U.S. headline CPI (1.15 ppts) is the widest gap in over a decade. Perhaps that's a function of the U.S. opening sooner or maybe just wonkiness in the data due to COVID-driven swings. The core measures are steadier though and suggest that the BoC is likely comfortable with the policy status quo for now.