Canada: Inflation seems to finally have started its long descent- CIBC
16.08.2022, 16:22

Canada: Inflation seems to finally have started its long descent- CIBC

The annual inflation rate in Canada dropped from 8.1% to 7.6% as expected. Despite the slowdown analysts at CIBC consider the Bank of Canada (BoC) is probably keeping a close eye on inflation ex food/energy these days that showed an acceleration, “not good news for the Bank, which should still be on track for a 75bps increase in rates at its next meeting.” 

Key Quotes: 

“Canadian inflation has taken its foot off the gas, but other elements in July’s inflation story were not as reassuring. Headline CPI inflation decelerated to 7.6% year-over-year in July on a much smaller 0.1% month-over month increase, roughly in line with consensus expectations. As expected, gasoline prices were the main driver of the slowdown. In what is bad news for consumers, food prices resumed their climb in July after taking a pause in June.”

“CPI inflation excluding food and energy spelled further trouble with an increase of 0.5% on a seasonally adjusted basis. Prices for services impacted by the pandemic, such as hotels, air transportation and restaurants all increased.”

“While inflation seems to finally have started its long descent, the acceleration in inflation excluding food and energy will be a concern for the Bank of Canada. With gasoline prices set to decline further in August, so should headline CPI, but that is not what the Bank will be watching. The focus should be on shelter prices (outside of mortgage costs), which should decelerate with the cooling housing market, and overall service inflation. For now, the Bank of Canada remains on track for a 75 bps increase at its September rate decision.

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