HomeContributorsFundamental AnalysisOn-Target Inflation Buys Time for BoC

On-Target Inflation Buys Time for BoC

  • Headline CPI fell back to 2.0% from 2.4% in May
  • Energy prices (gasoline, natural gas) fell sharply
  • BoC core measures averaged 2.0%

Headline CPI fell back to 2.0% in June with falling energy prices providing more offset against stronger food price inflation (particularly for fresh vegetables, which StatCan has attributed to inclement weather and supply disruptions in some regions). The average of the BoC’s core measures ticked slightly lower but remained in the middle of the 1.9-2.1% range seen since early last year. The longest period of near-target core inflation since the recession continues.

The Bank of Canada’s dovish tone last week had nothing to do with current inflation trends and everything to do with global growth concerns and trade tensions. In fact, 2% core inflation is one of the key reasons the BoC doesn’t appear to be in any rush to follow the Fed in lowering interest rates. The BoC sees some scope for core readings to dip below target in the coming quarters (the lagged effect of the economy’s recent slowdown) but thinks inflation will be sustainably at 2% by the middle of next year. That is contingent on the economy returning to near-2% growth—which is where the BoC’s concerns about the global backdrop enter the picture. But for now, inflation is sitting pretty at the BoC’s target, giving it time to be patient and see how activity is impacted by uncertainty and global headwinds.

RBC Financial Group
RBC Financial Grouphttp://www.rbc.com/
The statements and statistics contained herein have been prepared by the Economics Department of RBC Financial Group based on information from sources considered to be reliable. We make no representation or warranty, express or implied, as to its accuracy or completeness. This report is for the information of investors and business persons and does not constitute an offer to sell or a solicitation to buy securities.

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