Market Wire: Canadian Inflation Cools, But Broadens, Raising September Rate Expectations
Canadian headline inflation rates slumped again last month, but price pressures broadened across many services sectors, keeping the Bank of Canada on a tightening trajectory. Data released by Statistics Canada this morning showed consumer prices rising 7.6 percent year-over-year in July, with the month-over-month gain amounting to 0.1 percent, down sharply from 1.4 percent in June.
Core inflation, computed as the average of the three price measures preferred by the Bank of Canada (trim, median, and common), increased an annualized 5.3 percent, up from June’s revised 5.23 percent as costs rose in a broader range of economic sectors. Core measures strip out highly-volatile categories, and are often used to develop a better understanding of price pressures in the underlying economy.
As expected, shelter cost growth was finely balanced, slowing to 7 percent year-over-year from 7.1 percent in the prior month as mortgage costs climbed and home prices slumped. The mortgage interest cost index rose 1.7 percent, while the owned accommodation measure — a proxy for home prices — was up just 6.3 percent, well down from its April peak at 7.6 percent.
Gasoline prices dropped -9.2 percent month-over-month and the overall energy sub-index fell -5.4 percent.
Food prices kept accelerating, with grocery costs jumping 9.9 percent relative to the prior year, up from a 9.4 percent increase in June.
The statistical agency noted, “on average, price increases continued to exceed the year-over-year increase in hourly wages”, but the “gap in purchasing power was smaller than in June”.
The loonie is trading modestly higher as estimates derived from overnight index swaps suggest the central bank is now expected to raise rates by 64 basis points in September, up from the 59 basis points priced in ahead of the data release.