Canadian real GDP was largely unchanged from the prior month in July, following a 0.2 per cent decrease in June. A decline in manufacturing activity (-1.5 per cent) pulled GDP downwards with lower inventory formation and the BC port strike as the major contributors. Meanwhile, as wildfires retreated in Eastern Canada, the mining and quarrying sector jumped 4.2 per cent. Offices of real estate agents and brokers fell 1.3 per cent, declining for the first time in 6 months. Overall, Canadian real GDP is now 3.6 per cent above its pre-pandemic, February 2020 level. Preliminary estimates suggest that output in the Canadian economy edged up 0.1 per cent in August. 

July’s GDP number came in flat as anticipated, and although economic growth appears to be softening amid rising interest rates, the advanced estimate for August remains in weakly positive territory. The Bank of Canada held its overnight rate steady at 5 per cent in September, but last week’s inflation number was hotter than anticipated, causing financial markets to revise expectations. Markets now anticipate an additional rate hike before the end of the year. With the Canadian economy continuing to avoid recession, inflation at 4 per cent, and an unemployment rate still at a rather robust 5.5 per cent, an additional rate hike in October seems likely. However, the Bank will be paying close attention to CPI and employment data before the announcement on the 25th.  


Canadian prices, as measured by the Consumer Price Index (CPI), rose 4 per cent on a year-over-year basis in August, up from 3.3 per cent in July. Excluding gasoline, CPI rose 4.1 per cent year-over-year in August, the same rate as July. Shelter costs were up 6 per cent year over year, up from 5.1 per cent in July, driven by mortgage interest costs (up 30.9 per cent from last year) along with rents (up 6.5 per cent). Grocery prices were up 6.9 per cent year over year in August, down from 8.5 per cent in July. Month over month, seasonally adjusted CPI rose 0.6 per cent. In BC, consumer prices rose 3.8 per cent year-over-year.

The annual change in CPI continued rising in August as gasoline base year effects ended (the year-over-year change in gasoline prices was positive for the first time since January). Although food price inflation continued to gradually ease, shelter and rent inflation rates rose from July. Moreover, the Bank of Canada's measures of core inflation, which strip out volatile components, remained stubbornly high; all three measures were flat or rose in August. With softening labour markets and a flat preliminary July GDP estimate following a small contraction in June, the Bank of Canada opted not to raise rates again in September. However, bond yields jumped following the unexpectedly hot August CPI release, suggesting markets think the Bank could change course again. Guiding inflation back down to 2 per cent was sure to be a bumpy ride and the possibility of another rate hike at the next meeting on October 25th or before the end of the year appears to be still on the table.


Canadian real GDP fell by 0.2 per cent from the prior month in June, following a 0.2 per cent increase in May. The decline was led by weak wholesale trade, which contracted 3 per cent. Construction activity contracted for the second consecutive month, falling 0.6 per cent primarily due to lower residential building construction (which has been down for 14 of the last 15 months). Offices of real estate agents and brokers, however, rose for the second consecutive month, up 3 per cent, led by higher home reselling activity in BC and Alberta. Canadian real GDP is now roughly 3.5 per cent above its pre-pandemic, February 2020 level. Preliminary estimates suggest that output in the Canadian economy was essentially unchanged in July.

GDP was roughly unchanged in the second quarter, after growing 0.6 per cent in the first quarter. The slowdown was driven in large part by weaker housing investment, which fell 2.1 per cent in the second quarter, the fifth consecutive decline. Slower new construction (-8.2 per cent) and renovations (-4.3 per cent) were both driven by higher borrowing costs. Household spending slowed to 0.1 per cent in the second quarter, while slower inventory accumulation and lower net trade also pulled growth downwards. Employee compensation rose 2.2 per cent and household disposable income rose 2.6 per cent, driving the household saving rate to 5.1 per cent in the second quarter.

Higher borrowing costs seemed to finally be widely felt in the second quarter as the Canadian economy posted a softer figure than expected this morning. The economy contracted at an annualized rate of 0.2 per cent, while the preliminary estimate for July was also flat month over month. Following a weak July employment figure, with the Canadian unemployment rate rising to 5.5 per cent, and amid other signs like softer household spending, the slight quarterly contraction in GDP provides support for the Bank of Canada to hold its key interest steady next Wednesday and perhaps conclude this tightening cycle. However, with the inflation figure rising to 3.3 per cent as of the latest data in July, the effects of prior rate hikes still have work to do to bring inflation back down towards the Bank's target of 2 per cent. 

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