The Consumer Price Index went up 3.3% year-over-year in July, following a 2.8% increase in June. For the first time since the pre-pandemic, Canadian inflation is higher than in the United States - mainly due to a rise in Alberta electricity prices and higher airfares and travel services. Gasoline prices also contributed to this acceleration, falling less on a year-over-year basis compared to June.
Core inflation measures offer more reassurance for the Bank of Canada. The CPI trim fell slightly to 3.6% year-over-year in July following a November 2022 peak while the CPI median held steady at 3.7%.
According to Randall Bartlett, senior director of Canadian economics at Desjardins, “the modest slowing core CPI is a thin silver lining for policymakers in an otherwise strong CPI report.”
A majority of economists are predicting that the Bank of Canada will hold the policy rate at 5% when they meet on September 6th. On the other hand, some economists are expecting a 25-basis-point rate hike.
It is necessary for the Bank of Canada to stay aggressive with more rate hikes according to Derek Holt, head of Scotiabank Capital Markets Economics. He also noted that if the Bank is not proactive then there is a high risk of losing the fight against inflation as wages and expectations get out of hand.
The reading on Canada’s second-quarter gross domestic product will come out on September 1st, and the Bank will take that into consideration for their next meeting on September 6th. Stay tuned for the next Bank of Canada rate decision!
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