Canadian consumer prices decelerate slightly in August, BoC likely to hike rate next month

Canada’s consumer prices slow down slightly in August. On a year-on-year basis, Canadian headline consumer prices rise 2.8 percent, a slight slowdown from 3 percent seen in July, but consistent with market expectations. On a seasonally adjusted basis, prices rose 0.1 percent sequentially after a large 0.5 percent rise in July.

Some of the significant categories that stimulated inflation in the prior month eased in August. Air transportation prices fell after a 16.4 percent jump in July. Gasoline price growth also slowed to 19.9 percent from 25.4 percent. Thus, the transportation index rose 7.2 percent year-on-year from 8.2 percent in July, but stayed the most rapidly growing category.

Looking at wider categories, durable goods prices were up 1.1 percent year-on-year, after a 0.9 percent rise in July. In the meantime, price growth for non-durable goods and services stayed strong in spite of a light monthly deceleration. All of the Bank of Canada’s core measures rose on the month. CPI-common, CPI-median and CPI-trim rose by 0.1 percentage point to 2 percent, 2.1 percent and 2.2 percent, respectively.

As anticipated, after a large jump in July, headline inflation eased in August. The surge in July was mainly due to one-off factors, such as a large rise in air transportation prices as airlines responded to higher fuel and labor costs.

“Continued progress on the inflation front alongside a well-performing economy and a range of indicators pointing to limited excess capacity suggest that maintaining stable inflation will require further rate hikes by the central bank, with another one likely coming next month”, stated TD Economics in a research.

At 14:00 GMT the FxWirePro's Hourly Strength Index of Canadian Dollar was neutral at -48.4112, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at -4.3124. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex