David-Alexandre Brassard says oil price swings mask underlying stability
Canada's June inflation figures back up the Bank of Canada's decision to leave borrowing costs unchanged, with core price growth staying close to target even as oil markets swung sharply through the month.
CPA Canada's chief economist, David-Alexandre Brassard, says the headline number was largely a function of energy prices rather than any broad shift in the inflation picture. "Headline inflation continues to dance to the tune of oil prices, which moved lower in June as tensions in the Middle East temporarily eased," he says. "What's encouraging is that core inflation remained close to target, suggesting broader price pressures remain well anchored despite recent energy markets volatility."
Goods prices still climbed faster than services prices in June, though the two moved closer together as oil costs eased back. Brassard notes the figures point to an economy where faster growth hasn't translated into broader price pressure.
For Brassard, the report backs the central bank's current approach. Oil prices have since climbed again in July amid fresh Middle East tensions, though they remain below their spring highs.
"The risk of a sustained inflation surge is limited," he says. "We should expect headline inflation to move higher in July as oil prices creep back up, but there is little evidence that higher energy costs will lead core inflation to behave any differently."
He adds that the central bank has good reason to keep watching rather than acting. "For now, the Bank's wait-and-see approach remains the right one as policymakers assess whether recent geopolitical developments have any lasting impact on the inflation outlook."
