Canada’s consumer price inflation rises slightly in July, BoC likely to hike rates again in fall

Canada’s consumer price inflation accelerated slightly in July on a year-on-year basis. CPI inflation rose slightly to a still-modest 1.2 percent in the month from 1 percent in the prior month. On a sequential basis consumer price inflation rose 0.2 percent on a seasonally adjusted basis.

In a reversal from June, goods price inflation rose slightly, although to barely above 0 percent, owing to swings in energy prices. On the contrary, services inflation, at 2.1 percent year-on-year, continues to be the main driver of the overall price growth. However, it slowed down slightly from June’s 2.4 percent reading.

Out of three of Bank of Canada’s core inflation measures, two ticked up in July. CPI-median rose to 1.7 percent from 1.6 percent previously, while CPI-trim was also slightly higher, at 1.5 percent. The CPI-common measure of inflation remained the same at 1.4 percent in July.

Canada’s inflation might still be modest; however, it is showing some signs of moving in the “right” direction vis-à-vis the Bank of Canada's 2% inflation target, noted TD Economics in a research report. After months of slowdown, tick-ups in energy costs aided in delivering a small rise in price inflation in July. One month is hardly a trend; however, the modest rises in Bank of Canada’s core measures gives some hope that inflation might have turned a corner.

The Canadian central bank has hinted that it would carry on keeping a close watch on inflation data; however, given that today’s report is pretty much consistent with their expectations for soft inflation in the second half of 2017, no change in Governor Poloz’s thinking is expected, stated TD Economics. The central bank views the recent inflationary weakness as temporary, and expects recent economic strength to translate into inflationary pressures in 2018.

According to TD Economics, the Bank of Canada is likely to follow through with another 25 basis points rise in their overnight policy interest rate in the fall.

At 15:00 GMT the FxWirePro's Hourly Strength Index of Canadian Dollar was slightly bullish at 73;3543, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at -32.0682. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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