Canada: Uptick in prices is consistent with an economy with no remaining slack – NBF

According to National Bank of Canada’s analysts, Krishen Rangasamy, the rise in prices during June was a surprise even to the Bank of Canada. They see that recent momentum of different core inflation measures do not suggest runaway prices.

Key Quotes:

“June’s CPI data was hotter than expected in part due to surprises on food prices. Higher operating costs due to earlier increases to the minimum wage explain the surge in restaurant food prices since the start of the year (+4.5% y/y). Upward pressures on food prices could also be due to the depreciation of the Canadian dollar which is effectively increasing import prices of several fast turnover items such as fresh fruits and vegetables.”

“The uptick in prices is consistent with an economy with no remaining slack. June’s increase was a surprise even to the Bank of Canada who, just last week had estimated Q2 CPI to be 2.2% y/y ─ actual Q2 CPI ended up at 2.3% y/y. That’s not to say the central bank will panic. Recent momentum of different core inflation measures do not suggest runaway prices. Our in-house replication of CPI-Trim and CPI-median, show both measures running below the Bank of Canada’s 2% mid-point target on a 3-month annualized basis.”

“Canada’s consumer price index rose 0.1% (not seasonally adjusted) in June, allowing the year-on-year inflation rate to climb to 2.5% the highest since January 2012, and well above the 2.3% print expected by consensus.”