- Core inflation accelerated across all measures
- Breadth of price increases is trending higher
- Higher travel prices driven by pent-up demand, cheap CAD, continuing in August
- Be nimble toward the BoC amid firming inflation, fiscal, rebound & trade risks
- Canadian CPI, m/m / y/y %, NSA, July:
- Actual: 0.5 / 3.0
- Scotia: 0.5 / 3.0
- Consensus: 0.4 / 2.9
- Prior: -0.4 / 2.8
- Core inflation, m/m SAAR, July:
- Trimmed mean CPI: 2.8
- Weighted median CPI: 2.7
- CPI ex food and energy: 3.1
Canadian core inflation accelerated in July alongside a rising trend for the breadth of price pressures. Canada’s bond yield curve is only slightly underperforming US Ts and CAD barely reacted with the BoC priced for 16bps of a quarter point hike by year-end. Risks around trade negotiations hang in the balance which may require markets to be very nimble in both directions over at least the next 48–72 hours.
Key is that the core measures accelerated (Charts 1–3). Traditional core CPI was up by 3.1% m/m SAAR for the third straight month over 3%. Trimmed mean CPI accelerated to 2.8% m/m SAAR with a 3-mo MA of 2.2% m/m SAAR. Weighted median CPI picked up to 2.7% m/m SAAR with a 3mo MA of 1.8% m/m SAAR.
All else equal, measures like these lean against staying at the low end of the BoC’s neutral rate range. Fiscal stimulus, higher for longer commodities and rebounding growth with momentum into Q3 support this stance. Trade negotiations could be either a boon or a bane to the underlying rate drivers.
The trend in the breadth of price pressures is also rising and well off earlier lows (chart 4).
Core goods inflation picked up (chart 5) but key is that services inflation ex-shelter was hot for a third straight month (chart 6).
The entire travel services category has a weight of just 1.6% applied to the 7.2% m/m SAAR increase in all travel service prices for a weighted contribution of just 0.1 ppts to m/m SAAR CPI. World Cup games in Canada ended in early July. Airfare has been hot for a long time and not just due to the World Cup; in fact, August’s flight volumes are sharply accelerating to records. I think a cheap CAD and pent-up demand for travel explain more about what happened to this category. The breadth of price pressures was much greater.
See the ensuing collection of charts and the detailed table for more.
DISCLAIMER
This report has been prepared by Scotiabank Economics as a resource for the clients of Scotiabank. Opinions, estimates and projections contained herein are our own as of the date hereof and are subject to change without notice. The information and opinions contained herein have been compiled or arrived at from sources believed reliable but no representation or warranty, express or implied, is made as to their accuracy or completeness. Neither Scotiabank nor any of its officers, directors, partners, employees or affiliates accepts any liability whatsoever for any direct or consequential loss arising from any use of this report or its contents.
These reports are provided to you for informational purposes only. This report is not, and is not constructed as, an offer to sell or solicitation of any offer to buy any financial instrument, nor shall this report be construed as an opinion as to whether you should enter into any swap or trading strategy involving a swap or any other transaction. The information contained in this report is not intended to be, and does not constitute, a recommendation of a swap or trading strategy involving a swap within the meaning of U.S. Commodity Futures Trading Commission Regulation 23.434 and Appendix A thereto. This material is not intended to be individually tailored to your needs or characteristics and should not be viewed as a “call to action” or suggestion that you enter into a swap or trading strategy involving a swap or any other transaction. Scotiabank may engage in transactions in a manner inconsistent with the views discussed this report and may have positions, or be in the process of acquiring or disposing of positions, referred to in this report.
Scotiabank, its affiliates and any of their respective officers, directors and employees may from time to time take positions in currencies, act as managers, co-managers or underwriters of a public offering or act as principals or agents, deal in, own or act as market makers or advisors, brokers or commercial and/or investment bankers in relation to securities or related derivatives. As a result of these actions, Scotiabank may receive remuneration. All Scotiabank products and services are subject to the terms of applicable agreements and local regulations. Officers, directors and employees of Scotiabank and its affiliates may serve as directors of corporations.
Any securities discussed in this report may not be suitable for all investors. Scotiabank recommends that investors independently evaluate any issuer and security discussed in this report, and consult with any advisors they deem necessary prior to making any investment.
This report and all information, opinions and conclusions contained in it are protected by copyright. This information may not be reproduced without the prior express written consent of Scotiabank.
™ Trademark of The Bank of Nova Scotia. Used under license, where applicable.
Scotiabank, together with “Global Banking and Markets”, is a marketing name for the global corporate and investment banking and capital markets businesses of The Bank of Nova Scotia and certain of its affiliates in the countries where they operate, including; Scotiabank Europe plc; Scotiabank (Ireland) Designated Activity Company; Scotiabank Inverlat S.A., Institución de Banca Múltiple, Grupo Financiero Scotiabank Inverlat, Scotia Inverlat Casa de Bolsa, S.A. de C.V., Grupo Financiero Scotiabank Inverlat, Scotia Inverlat Derivados S.A. de C.V. – all members of the Scotiabank group and authorized users of the Scotiabank mark. The Bank of Nova Scotia is incorporated in Canada with limited liability and is authorised and regulated by the Office of the Superintendent of Financial Institutions Canada. The Bank of Nova Scotia is authorized by the UK Prudential Regulation Authority and is subject to regulation by the UK Financial Conduct Authority and limited regulation by the UK Prudential Regulation Authority. Details about the extent of The Bank of Nova Scotia's regulation by the UK Prudential Regulation Authority are available from us on request. Scotiabank Europe plc is authorized by the UK Prudential Regulation Authority and regulated by the UK Financial Conduct Authority and the UK Prudential Regulation Authority.
Scotiabank Inverlat, S.A., Scotia Inverlat Casa de Bolsa, S.A. de C.V, Grupo Financiero Scotiabank Inverlat, and Scotia Inverlat Derivados, S.A. de C.V., are each authorized and regulated by the Mexican financial authorities.
Not all products and services are offered in all jurisdictions. Services described are available in jurisdictions where permitted by law.