Canada‘s inflation data for July confirms a disinflation trend, as the Consumer Price Index (CPI) rose by 1.7% year-over-year, aligning with economists’ expectations and showing a decrease from June’s 1.9%. This is the fourth month in a row that the CPI has come in under the Bank of Canada’s target rate of 2%. The newest numbers, just out today by Statistics Canada, show that the country is starting to get some relief from the tormented inflationary cycle.
Companies and employers, International Monetary Fund, July, Bank of Canada, consumer prices, raise interest rates This was a big jump up from June’s extremely small gain of only 0.1%. The general inflation picture is still highly mixed. Consequently, the idea that the Bank of Canada will be aggressive with monetary policy can be de-prioritized. A point Derek Holt, an economist at Scotiabank, emphasized was perhaps the most important. He doubts that the central bank will decide anything on the basis of the July data alone.
“The core measures exclude tariffs, but not the possible pass-through incidence effects,” Holt remarked, highlighting ongoing concerns regarding sticky service prices and tariff impacts that may affect future inflation trends.
The Core CPI, with the volatile eight removed — those are fruits, vegetables, and fuels — fell to 2.6% year-over-year in July. That’s a drop from 2.7% in June. This decline in the core measure is reflective of a more recent cooling, albeit slight, in the underlying inflationary pressures that exist. These year-over-year CPI and Core CPI readings are comparing July prices to July prices one year ago. This strategy allows us to get the best read on which way inflation is heading over the long-term.
As you might have heard, markets are reacting to the shocking simplicity of the latest inflation report. They have now priced in a 37% chance of a rate cut by the BoC in September. Indeed, the newly released data presents a picture of ongoing disinflation. This has led to predictions about the central bank’s next policy moves running rampant.
Secondly, the Bank of Canada has stated that it will consider all available indicators in formulating its monetary policy. It will not base its decision on the July inflation figures alone. The central bank will see two more inflation reports before its September 17th decision. This focused review will ensure that any needed policy changes are based on sound economic judgement and reflective of the dramatically changing economic landscape.
In the wake of the softer inflation data, the Canadian Dollar fell broadly. The USD/CAD cross has now blasted above the 1.3830 level. This increase is a testament to investors’ positive reaction to the disinflationary signs in the past month’s CPI report.