MNI 5 Things: Canada July CPI Tops Expectations, Core Holds>

--Minimal Impact On Inflation Expected From Tariffs on US Imports

By Yali N'Diaye

     OTTAWA (MNI) - The following are the key points from the July data 

on the Canadian Consumer Price Index released Friday by Statistics 

Canada: 

     - Headline unadjusted CPI rose 0.5% on the month, while analysts in 

a MNI survey had expected a flat reading, following a 0.2% increase in 

June. Air transportation (+16.4%) and travel tours (+13.9%) were the 

largest upward contributors. Most major components recorded higher 

monthly prices, except for clothing and footwear, and health and 

personal care. 

     - On a 12-month basis, July CPI picked up to 3.0% from 2.5% in 

June, the highest rate since September 2011. Analysts in a MNI survey 

had expected a 2.5% increase, also above the Bank of Canada's 2.0% 

target. A 25.4% gain in gasoline prices, the largest since June 2011, 

was the largest upward contributor. CPI excluding gasoline was up 2.2%. 

CPI excluding food and energy was up 2.3%. 

     - However, the BOC's preferred core measures of underlying 

inflation held up, with the range ticking up by 0.1 point to 1.9%-2.1% 

in July from 1.9%-2.0% in June. Both CPI-common and CPI-median were 

steady at 1.9% and 2.0%, respectively, while CPI-trim edged up to 2.1% 

from 2.0%. 

     - While the BOC had expected total CPI to exceed the 2.0% mid-range 

target temporarily, it did not expect an increase to the extent seen in 

July. In its July Monetary Policy Report, the central bank had expected 

inflation to reach 2.5% in the third and fourth quarter 2018. So it 

remains to be seen whether July will be a peak. That being said, with 

core inflation still at target, and with CPI excluding gasoline alone at 

2.2%, the BOC might not panic, although justifying more wait for further 

rate hikes might become harder amid solid economic activity indicators. 

     - Statistics Canada said in an additional note Friday that the 

direct impact on inflation from Canadian tariffs on C$16.6 billion worth 

of U.S. imports in effect since July 1 will be a maximum of 0.7 

percentage points in the annual CPI. This supports the BOC's 

anticipation of a "modest" impact as well. Given that the tariffs were 

only introduced in July, it is too early to see the effect yet on 

inflation. 

--MNI Ottawa Bureau; email: yali.ndiaye@marketnews.com 

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