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Inflation data from Canada showed the Consumer Price Index fell 0.1% in August against expectations of a modest increase. According to analysts at the National Bank of Canada the numbers from the August inflation were somewhat stronger than what the headline suggested.

Key Quotes:

“The CPI has been subject to volatile movements over the past few months. The latest August headline print echoes the renewed weakness which first appeared in July following the June snapback. At first glance the latest report appears to be tepid, but the underlying data paints a different story. True, transportation and food were weak, but these were partially compensated by large increases for recreation/education/reading, health/personal care, clothing and shelter.”

“While CPI excluding food and energy was showing a slight increase (+0.08%) in August (seasonally adjusted), price declines were not widespread among categories as shown by our in-house replications of the preferred measures of the central bank (which excludes the most volatile components each month).”

“Underlying inflation remains resilient for now perhaps due to the shuttering of certain supply chains and rising operational costs due to social distancing. But keep in mind that economic weakness usually impacts inflation with a lag suggesting modest pressure on prices in the coming quarters.”