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Canada Inflation July 2023

Canada: Inflation overshoots market expectations in July

Inflation rose to 3.3% in July, above June’s 2.8%. The reading was primarily due to a less favorable base effect for energy prices. Moreover, housing and clothing inflation accelerated. July’s reading was notably above market expectations of 3.0%.

The trend pointed down, with annual average inflation coming in at 5.2% in July (June: 5.6%). Meanwhile, core inflation was steady, coming in at June’s 3.2% in July.

Finally, consumer prices rose 0.57% in July over the previous month, accelerating from June’s 0.13% rise.

July’s data raises the risk of a rate hike at the Central Bank’s 6 September meeting, though for now most of our analysts still see the Bank on hold for the remainder of the year.

On the outlook, Desjardins’ Randall Bartlett said:

“July’s headline inflation print stands in contrast to the relatively weak macroeconomic data over the past few weeks. Indeed, real GDP, employment and international trade all suggested the long-anticipated cooling of the Canadian economy may have finally arrived. […] When combined with the deceleration in the 3-month annualized core inflation numbers, this reinforces our call that the Bank of Canada is likely to remain on hold at its September meeting.”

Goldman Sachs’ analysts are more hawkish:

“The BoC will have to hike again by the end of the year. While we maintain our forecast for a more cautious approach that leads to pause in September and a final 25bp hike in October, we think a hike in September is possible given the lack of progress on a range of underlying inflation indicators, the resilient activity picture, and the still-elevated wage growth.”

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