Canadian Inflation (July 2023)

Canadian prices, as measured by the Consumer Price Index (CPI), rose 3.3 per cent on a year-over-year basis in July, up from 2.8 per cent in June. Easing of gasoline base-year effects compared to last year was responsible much of the increase. Excluding gasoline, CPI rose from 4 per cent to 4.1 per cent in July. Shelter costs were up 5.1 per cent year over year, driven by much higher mortgage interest costs (up 30.6 per cent from last year) along with rents (up 5.5 per cent). The homeowner's replacement cost, which tracks home prices, was down 0.9 per cent year over year. Grocery prices were up 8.5 per cent year over year. Month over month, CPI rose 0.6 per cent. In BC, consumer prices rose 3 per cent year-over-year.

The annual change in CPI jumped back above 3 per cent in July, largely due to disappearing base-year effects for gasoline. Although food price inflation continued to gradually ease, shelter and rent inflation rates rose from June. Moreover, the Bank of Canada's measures of core inflation, which strip out volatile components, remained stubbornly high. With softening labour markets and a weak preliminary June GDP estimate, a September overnight rate hike had seemed unlikely. However, bond yields rose following the July CPI release, indicating the option is still on the table. Guiding inflation back down to 2 per cent was sure to be a bumpy ride and the Bank will be closely watching the retail sales and GDP releases scheduled prior to the September 6th rate decision.