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Data released on Wednesday, showed the Consumer Price Index in Canada remained flat in July and the annual rate dropped from 0.7% to 0.1%. Matthieu Arseneau and Kyle Dahms, analysts at the National Bank of Canada, point out the struggling economy ahead will put some disinflationary pressures on prices. 

Key Quotes:

“CPI has experienced record high volatility during the pandemic. Following a deflation episode during the economic lockdown and a snapback in June with the economy reopening, it is now showing renewed weakness in July. Headline inflation was below expectations by four tenths during the month, a complete reversal with June where a miss of this magnitude was observed but in the opposite direction (i.e. consensus expecting much weaker inflation).”

“While CPI excluding food and energy was showing a 0.2% decline in July (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).”

“The struggling economy in the coming months will put some disinflationary pressures on prices. However, this recession is atypical in a sense that the shuttering of certain supply chains and rising operational costs due to social distancing could have the opposite effect going forward.”