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By Yali N'Diaye
     OTTAWA (MNI) - Canadian core inflation gauges rose in August, likely
keeping the Bank of Canada on track for an expected October rate hike.
     The CPI-trim measure, which excludes the most volatile price moves in any
given month, jumped 0.1 percentage point from July to 2.2%, the highest since
February 2012, Statistics Canada said Friday. CPI-common, another calculation of
underlying inflation followed by the Bank, also gained 0.1 percentage point, to
2.0%.
     While the headline inflation rate eased to 2.8% in August from 3.0% in
July, it remained above the central bank's 2.0% mid-range target. The BOC's
third-quarter inflation forecast of 2.5% looks likely to be exceeded.
     In its Sept. 5 policy statement, the Bank blamed the higher-than-expected
July headline reading on a rise in airfares, but signaled greater confidence in
increased interest rates ahead.
     --AIR FARES JUMP
     Friday's underlying inflation data will reinforce the chances of this
year's third 25-basis-point hike when it meets again Oct. 24.
     Air transportation was once more the largest upward contributor to headline
inflation in August, jumping 26.4%, while gas prices rose 19.9% year-over-year.
     BOC rate increases are also adding to inflation, with mortgage interest
costs consistently among the top five upward contributors to 12-month inflation
since May.
     Mortgage interest costs rose 5.8% in August, the fourth-largest
contributor, behind food purchased from restaurants, which likely continues to
feel the impact of an increase in minimum wages in Ontario in January.
     Against this backdrop, barring the collapse of renegotiations of the North
American Free Trade Agreement, Friday's data raised the bar for the BOC to stay
on hold next month.
--MNI Ottawa Bureau; +1 613 869-0916; email: yali.ndiaye@marketnews.com
[TOPICS: M$C$$$,MI$$$$]