Canada Inflation Quickens to 3.3% But Core Measure Shows Progress
(Bloomberg) — Inflation ticked back above the Bank of Canada’s control range in July, but progress on underlying price pressures leaves room for policymakers to pause interest-rate hikes.
The consumer price index rose 3.3% from a year ago, the first reacceleration since April, Statistics Canada reported Tuesday in Ottawa. That was faster than the median estimate of 3% in a Bloomberg survey of economists. On a monthly basis, the index rose 0.6%, double their expectations.
The Canadian dollar reversed earlier losses after the release of the data to trade at C$1.346 per US dollar at 8:45 a.m. Ottawa time. Bonds slumped, with the yield on two-year Canada debt jumping as high as 4.831%.
The hot headline rate, however, is watered down by some easing in the core measures. Two key yearly inflation measures tracked closely by the central bank — the so-called trim and median core rates, which filter out items with extreme price fluctuations — eased, averaging 3.65% from a downwardly revised 3.7% a month earlier.
A three-month moving average of the measures that Governor Tiff Macklem has mentioned as key to his team’s thinking fell to an annualized pace of 3.49%, from an upwardly revised 3.91% previously, according to Bloomberg calculations.
“The modest slowing in core CPI is a bit of a silver lining for policymakers in a generally strong CPI report,” Benjamin Reitzes, a rates and macro strategist at Bank of Montreal, said in an email. The Bank of Canada “likely wants to move to the sidelines in September and give prior hikes time to have an impact, but the inflation figures aren’t making that an easy call.”
The numbers highlight a challenge in the current phase of the inflation fight after favorable base effects — which lent a
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