CIBC's recent commentary sheds light on Canada's escalating inflation rates for July and deliberates on the implications this might have on the Bank of Canada's (BoC) forthcoming policy decisions.
July's Inflation Data:
- Inflation in Canada quickened in July, with the year-over-year (y/y) rate climbing to 3.3% from 2.8% in June, exceeding the consensus estimate of 3.0%.
Main Drivers Behind the Inflation Surge:
- A noteworthy factor was base effects due to the significant drop in gasoline prices from the previous year.
- Prices, when food and energy are excluded, grew by 0.3% (seasonally-adjusted). A marked increment in shelter costs played a role, correlating with a surge in mortgage interest costs, which are tied to the overnight rate.
BoC's Core Inflation Metrics:
- The central bank's chosen core inflation indicators, CPI-trim and median, were reported at 3.6% y/y and 3.7% y/y, aligning with market predictions.
Policy Implications for the BoC:
- The robustness in the core inflation figures leads CIBC to project a 25 basis point (bps) increment in rates from the BoC in the upcoming September meeting.
Given the robust core inflation trends observed in July, CIBC anticipates the Bank of Canada to make a decisive move with a 25bps rate increase in their September session.