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Inflation data for August was released today in Canada. Krishen Rangasamy, Senior Economist at the National Bank of Canada, points out that inflation this quarter is proving to be hotter than what was expected by the Bank of Canada.  

Key Quotes:

“The Bank of Canada’s preferred core inflation measures on a year on year basis were as follows: CPI-trim (2.2%), CPI-median (2.1%) and CPI-common (2.0%), the latter being slightly higher than what was expected by consensus. The average of the three core measures is now at 2.1%, the highest since
February of 2012.”

“Assuming seasonal patterns hold in September, the annual headline inflation rate will be 2.9% in Q3, four ticks higher than the central bank’s estimate for the quarter. Will the central bank keep blaming temporary factors for the upside surprise on inflation? True, the surge in inter-city transportation category ─ there was only a slight pullback in  August after July’s outsized gains ─ is unlikely to be repeated next quarter. But there’s no denying overall price pressures are heating up.”

“The CPI-trim, which excludes items with highly volatile (and temporary) monthly price movements, is running at 2.2% on a year-on-year basis. And it’s not just base effects at work here. Price pressures have been intensifying lately as evidenced by 3-month annualized changes for all three core measures which are in the 2.5-3.0% range. That reflects an economy with little to no slack. All in all, inflation this quarter is proving to be hotter than what was expected by the Bank of Canada. An October interest rate hike by the central bank is highly likely in our view.”