In July, the consumer price index climbed 0.5% (not seasonally adjusted), three ticks higher than the median economist forecast. The rise left the year-on-year measure unchanged at 2.0%. In seasonally adjusted terms, the CPI was up 0.4% in the month on increases in recreation (+0.9%), transportation (+0.6%), and food (+0.3%), among others. The Bank of Canada’s preferred core measures on a year-on-year basis pegged in as follows: 2.1% for the CPI-trim, 2.1% for the CPI- median, and 1.9% for the CPI-common. The average of the three measures remained in line with the BoC’s midpoint target of 2.0%. It is worth noting that the momentum has been building of late.

Our in-house replication of the CPI-trim and the CPI-median for the three months to July reached 2.5% and 2.6%, respectively, on an annualized basis. Whereas the Fed can point to soft annual inflation figures to justify rate cuts, the BoC is faced with a very different situation. What’s more, in a context marked by a tight labour market and a weak Canadian dollar, we cannot rule out stronger inflation down the road.