Canada August CPI - Near consensus, but upside risks building
August’s Canadian CPI was stable at 3.0% yr/yr as expected with the Bank of Canada’s core rates broadly stable too. However the seasonally adjusted ex food and energy CPI (not one of the BoC’s core rates) saw a fourth straight 0.3% increase, and its yr/yr rate is picking up. Inflationary risks are looking increasingly skewed to the upside, and not only on energy. We expect the BoC to tighten in December.
Before seasonal adjustment the CPI fell by 0.1% overall and was unchanged ex food and energy, but seasonally adjusted a 0.2% incase was seen, with the ex food and energy rate at 0.3%. Four straight 0.3% gains follow four straight at 0.1% or lower, and may be in part corrective, but inflationary pressures do appear to have picked up as the economy regained momentum in Q2. The yr/yr ex food and energy rate of 2.1% is up from 1.9% in July and a low of 1.5% seen in April.
The BoC’s target for its core rates is 2.0%. CPI-Median remained steady at 2.0% even before rounding while CPI-Trim remained steady at 1.9%, though increased to 1.94% from 1.90% before rounding. The BoC attaches less weight to its third core rate, CPI-Common, which slipped to 2.6% from 2.7%, reversing a pick up seen in July.
The seasonally adjusted CPI breakdown shows the strongest gain came from recreation, education and reading, up by 0.7%, extending a 0.6% July increase, with shelter seeing a 0.3% rise, up from 0.1% in July. Clothing and food wear provided some offset with a 0.4% decline. Rent, traveler accommodation and telephone services were the main upward contributors to the monthly ex food and energy gain. Air fares and travel tours corrected from recent strength, while men’s clothing also fell significantly.
