Canadian CPI Delivers No Surprise

August 21, 2008

Canadian total consumer prices posted a smaller seasonally adjusted monthly rise in July of 0.3% after increases of 0.8% in June, 0.7% in May and 0.5% in April, and the 12-month inflation rate was at an expected 3.4% compared to U.S. inflation of 5.6%.  3.4% represents a 64-month high and was less than the Bank of Canada’s third-quarter forecast of 3.8%.  However, that forecast made last month had assumed that world oil prices would average $141 this quarter, which clearly will prove too pessimistic.  Core inflation remained at 1.5% y/y for a fourth consecutive month, which also happens to be the central bank’s forecast for the quarter.  Over the first seven months of 2008, consumer prices increased 4.5% at a seasonally adjusted annual rate (saar) in Canada and 6.2% saar in the United States.  Those advances were higher than the comparable increases in January-July 2007 of 2.8% and 3.7%. Previous strength in the Canadian dollar explains most of Canada’s lower inflation rate.  Canadian GDP unexpectedly fell 0.3% saar in the first quarter and is likely to have performed more weakly in 2Q than the +0.8% that central bank officials had assumed.  During last quarter, growth in the volume of retail sales slowed progressively with monthly changes of +0.5% in April, +0.1% in May and -0.4% in June.

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