Canada’s cooler inflation data last month won’t stop Bank of Canada Governor Tiff Macklem from another bigger-than-normal rate hike, economists say. Photo by REUTERS/Blair Gable/File Photo

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From hopeful observations of peak price pressures to warnings of over complacency, Bay Street economists are reacting to July inflation readings, which came in at a relatively lower rate of 7.6% compared to 8.1% in June, according to with Statistics Canada. The easing has largely been characterized as a gasoline story, with prices rising 35.6% in July compared to June’s hotter pace of 54.6%.

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With core measures reaching a record 5.3% in July and the agency warning that inflation remains broad-based, economists and business leaders say the Bank of Canada’s mission to return inflation to a two per cent reading is far from over. to be completed. . Here’s what the street had to say:

Claire Fan, economist at RBC Economics

“The decline in the nominal rate is entirely due to lower petrol prices, which fell to around $1.85/litre by the end of July after breaking the $2/litre mark in June… Shorter-term measures of gauge inflation will they must continue to watch gas prices lower. Indeed, pump prices fell another 6 percent in just the first two weeks of August. Meanwhile, more cooling in the housing market, easing of global supply chain constraints and lower commodity prices will help reduce price pressures for a wider range of products.”

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“It is not unreasonable to expect the core CPI, along with the range of inflationary pressure, to turn. But the pace of inflation is still well above the Bank of Canada’s comfort zone, and consumer demand will likely have to soften much more to fully and sustainably return CPI growth to the central bank’s 1% to 3% target range . Rate forecast: 75 basis points in September. policy rate of 3.5% until the end of the year.

Douglas Porter, chief economist at the Bank of Montreal

“Probably the biggest theme from this latest reading is a significant shift in where the strongest price pressures are coming from. Beyond the pullback in pump prices, there’s also been a clear lull in some sectors that saw a big boost from the pandemic (such as furniture, appliances, clothing, tools, sporting goods and entertainment products)… Connecting these two conflicting trends leaves us with still high underlying inflationary pressures of just over 5%. While there are many (too many!) key measures to pick and choose from, they all send the same message — underlying inflation is at least 2 percentage points above the upper end of the 1 percent to three per percent BoC cent target band .

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“This report is clearly a step in the right direction, but the journey is many miles away… Yes, we may eventually pass peak inflation — provided oil prices don’t spike again — but it’s likely to remain very sticky to close to eight percent in the second half of this year before actually falling lower in 2023.” Rate forecast: At least 50 basis points in September.

Royce Mendes, managing director and head of macro strategy at Desjardins

“Canadians looking at today’s consumer price data will breathe a sigh of relief. For the first time since June 2021, the annual rate of inflation is lower than it was last month… It looks increasingly likely that inflation will be lower than the Bank of Canada’s third-quarter forecast of 8.0%.

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“But this is no time for complacency. A 9.2 percent drop in gasoline prices did much to dampen price increases in other sectors… Excluding food and energy, prices rose 0.5 percent in seasonally adjusted terms in July, leaving annual rate of this stripped inflation index to run at 5.5 percent and the three-month annual rate at 6.4 percent. The average of the Bank of Canada’s three key measures also jumped to 5.3%, the highest on record.” Rate forecast: No 100 basis point hike in September, but central bankers likely to hike 50 basis points.

Karl Schamotta, head of market strategy at Cambridge Mercantile Corp.

“Inflation rates in Canada eased again last month, but price pressures widened across many services sectors, keeping the Bank of Canada on a tightening path… Core measures strip out highly volatile categories and are often used to better understand price pressures in underlying economy’.

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Rate Forecast: Given the loonie trading slightly higher, the swaps market is pointing to a reversal of the currency between 50 and 75 basis points in September, with a 75 basis point upside bias.

Veronica Clark, economist at CITI Canada Economics

“The CPI details were mixed, with early indications that the overall contribution of house prices to the core CPI could stabilize as falling house prices begin to feed into fundamentals. However, the most important details in our view were the continued rise above average measures of core inflation, particularly core CPI, to above 5%. This should have more aggressive near-term implications for the (Bank of Canada).”

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Rate forecast: 75 basis points in September.

Kiefer Van Mulligen, Economist at The Conference Board of Canada

“Could this be the beginning of the end of our inflationary boom? Canada’s annual CPI growth may be moving in a more positive direction. That is, bearish… The psychological effects of falling fuel prices also bode well for shaping inflation expectations. Fluctuations in the price of natural gas disproportionately affect consumer perceptions of inflation. The flurry of bullish headlines likely to follow today’s release may also help. “It will take more than a month of good news to affect the Bank of Canada… The bond CPI may have dipped, but it has a long way to go before reaching the bank’s inflation target range. Canadian consumers and businesses may see today’s release as good news, but they must continue to calculate the impact of today’s increased prices. Labor strife is growing and wage demands are rising. Our summer of inflationary discontent isn’t over yet.”

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Rate Forecast: We’re unlikely to see another 100 basis point hike in September.

Karyne Charbonneau, executive director of finance at CIBC Capital Markets

“Canadian inflation takes off natural gas and begins its long descent… As expected, gasoline prices were the main driver of the slowdown. In bad news for consumers, food prices continued to rise in July after a pause in June. CPI inflation excluding food and energy caused further problems with an increase of 0.5 percent on a seasonally adjusted basis. “While inflation appears to have finally begun its long descent, an acceleration in inflation excluding food and energy will be a concern for the Bank of Canada. As petrol prices are expected to fall further in August, so should the CPI headline, but this will not be monitored by the bank. The focus should be on housing prices (excluding mortgage costs), which should slow as the housing market cools and overall services inflation.” Rate forecast: 75 basis points in September. • Email: [email protected] | Twitter: StephHughes95 Listen to Down to Business for in-depth discussions and insights on the latest Canadian business, available wherever you get your podcasts. Watch the latest episode below:

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