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Canadian headline inflation accelerates year-on-year in July

Canadian headline inflation accelerated in July. On a year-on-year basis, the consumer price index rose 3 percent from June’s 2.5 percent. This is above the median expectations for an unchanged print. On a sequential basis, the consumer prices rose 0.5 percent.

The headline print was mainly driven by energy prices, which rose 14.2 percent year-on-year. Air transportation was also another factor that contributed majorly to the headline print. Air transportation rose 28.2 percent year-on-year and 16.4 percent sequentially.

The Bank of Canada’s core measures were widely unchanged. CPI-common and CPI-median continued to be at 1.9 percent and 2 percent respectively, while CPI-trim rose to 2.1 percent from 2 percent in June. The average of the three measures is now at 2 percent.

The rise in headline inflation was unexpected. The increase in air transportation was a big factor, contributing over 0.3 percentage points to price growth in the past year. This appears to be a one-off, reflecting the effect of higher fuel and labor costs on the airline industry, noted TD Economics in a research report. The comparative stability of core inflation measures might provide the Bank of Canada some solace.

“Still, with an economy beating expectations and a range of indicators pointing to limited excess capacity, maintaining stable inflation is likely to require further rate hikes by the central bank with the next one likely coming in October”, added TD Economics.

At 14:00 GMT the FxWirePro's Hourly Strength Index of Canadian Dollar was neutral at 2.35163, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at -40.4976. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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