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.

Key Highlights:

1. 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%.

2. 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.

3. 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.

4. 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.

Summary:

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.