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The Consumer Price Index rose 0.5% in Canada during July and 2.0% from a year ago, surpassing expectations. Matthieu Arseneau, analyst at the National Bank of Canada, points out the index surprised again to the upside.  

Key Quotes:

“The Bank of Canada’s preferred core measures on a year on year basis were as follows: 2.1% for CPI-trim (unchanged from June, one tick above consensus), 2.1% for CPI-median (2.2% in June, in line with consensus) and 1.9% for CPIcommon (1.8% in June, one tick above consensus).”

“Underlying inflation also surprised on the upside with two of the three preferred measure of the central bank being above consensus expectations. The average of the three core measures remains in line with the midpoint target of the Central Bank at 2.0% on an annual basis.”

“It is worth noting that the recent momentum is even stronger. Our in-house replications of CPI-Trim and CPI-median rose over the past 3 months are respectively at 2.5% and 2.6% on an annualized basis.”

“As opposed to the Fed who could use soft annual inflation numbers as a justification for rate cuts, it’s not the case for the Bank of Canada. In a context of a tight labour and a weak Canadian dollar, we cannot rule out higher inflation down the road.”