Oh no! Canadian inflation is rising again but what do the experts make of the stats?

The latest CPI data from Statistics Canada shows an acceleration in the annual rate

Oh no! Canadian inflation is rising again but what do the experts make of the stats?
Steve Randall

Canadian inflation remains an uncertain beast with an acceleration in the Consumer Price Index in July following a decrease in the previous month.

While the CPI fell from an annual increase of 3.4% in May to 2.8% in June, it jumped up to 3.4% again in July as a 9% drop in gasoline prices a year earlier is no longer impacting the annual stats. Excluding gasoline, the CPI rose 4.1%, edging up from 4.0% in June.

Surging energy prices in Alberta and a 30% increase in the mortgage interest cost index were among the drivers in the CPI while grocery prices showed some easing in July at an annual pace of 8.5% compared to 9.1% in June.

The Statistics Canada data shows that month-over-month the CPI rose 0.6% in July following a 0.1% gain in June.

Wealth Professional has been rounding up what some of Canada’s leading economists and financial services industry experts make of the latest CPI data.

BMO Economics

“There's no sense sugar coating this one—it is not a good report for the Bank of Canada,” wrote BMO Economics’ chief economist Doug Porter, who noted that the BoC was expecting a 3.3% pace for the whole of the third quarter, not a higher rate in just one month. And he expects the August stats to be higher.

“We still believe that with the recent upswing in the unemployment rate and clear signs of cooler spending that the BoC would prefer to move to the sidelines in September and give prior hikes time to work, but the inflation figures will make it a tougher call,” Porter said.

TD Economics

TD Economics’ senior economist Leslie Preston also commented on the ongoing challenge for the central bank.

“The BoC's median and trim inflation measures continued to make progress in July, but at a glacial pace. Underlying inflation remains a long way from the 2% goal,” she wrote, adding that progress on inflation will likely remain disappointing this year with the economy still performing fairly well.

“This is pushing up expectations that the BoC may pursue another rate hike in the fall months as it gathers more information on the jobs market and overall inflation,” Preston added.

Franklin Templeton

Michael Greenberg, SVP, portfolio manager, Franklin Templeton Investment Solutions, told Wealth Professional that the direction of the CPI move was expected although the magnitude was not, although he does see some progress.

“Looking at three-month trends in the core inflation measures, we see continued progress as they have eased from last month and now sit at 3.5%,” said Greenberg, adding that “the debate may move from how high they need to get rates to how long they need to stay there.”

“The lagged effects of previous hikes are still working their way through the system. We are seeing some signs the economy is cooling along with good progress on inflation, both of which should continue into the fall taking some pressure off the BoC,” he concluded.

CIBC Capital Markets

At CIBC Capital Markets, senior economist Katherine Judge is expecting the BoC to take further action next month.

“While we would argue for more patience, the BoC is likely on track for a final 25bp hike in September,” she wrote.

However, after that, Judge believes the central bank will pause again as unemployment continues to rise.

“We continue to view the Bank as overshooting and we therefore expect inflation to fall below the 2% target as early as the second half of 2024,” she added.