Canadian inflation data for July 2018:
Highest since 2011
Prior was 2.5% y/y
Prices up 0.5% m/m vs +0.1% expected
Prior m/m was +0.1% (unrevised)
Core numbers y/y:
- Core common +1.9% vs 2.0% expected (and +1.9% prior)
- Core median +2.0% vs +2.0% prior
- Core trim +2.1% vs +2.0% prior
Massive beat on CPI. USD/CAD drops to 1.3075 on the kneejerk.
" While continued strength in energy prices contributed most to the year-over-year increase, higher prices for various services, including air transportation and travel tours, also contributed to consumer price growth in July," Statistics Canada said.
- Transportation index +8.1%
- Energy costs +14.2%
- Consumer prices for gasoline +25.4%
- Purchase of passenger vehicles +2.0% y/y vs +1.8% prior
- Services +3.2% y/y vs +2.2% prior
The story here is services. The energy stuff comes and goes but the services index jumped 1.1% m/m. Part of that is from travel-related stuff like tours and air transport, which could be fuel passing through but telephone services also rose (which could be a reversal of price promotions in May-June).
If you really wanted, you could probably explain this away as a series of one-off distortions and I'm somewhat sympathetic to that but the BOC is going to see a 3% number and rising services costs and err on the side of safety with a rate hike in Sept/Oct and potentially another one in December depending on how NAFTA negotiations go.
