Canada: Stronger print of July CPI – TDS

Analysts at TD Securities note that the Canada’s CPI inflation was much stronger than expected in July at 3.0% y/y, with prices up 0.5% m/m (market: 0.1% m/m, 2.5% y/y) on a transitory lift from airfares and travel services. Core measures were little changed at 2.0% y/y on average.

Key Quotes

“While certainly eye-catching, we think the transitory nature of the upside surprise and stable core inflation will allow the BoC to look through this print.”

“The bar for a September hike might be slightly lower following the data, but the BoC will be more focused on the GDP figures later this month.”

“We still look for the Bank to lift rates next in October.”

“FX: The headline beat triggered a notable bid in the CAD, but with transitory factors at play and the underlying core measures stable, we think the edge in CAD may come off a bit.

Nonetheless, the narrative of a September hike may continue to percolate in the market but we rather view activity data later this month as the true barometer for CAD direction.”