Canada's headline CPI rose 2.7 percent in June from a year earlier, reversing the slightly worrisome uptick seen in May. On an unadjusted monthly basis CPI actually fell 0.1 percent in June after jumping 0.6 percent in May. The deceleration in year-on-year inflation was mainly the result of lower prices for gasoline and durable goods. One minor niggle in the report was a small uptick in food price inflation, led by prices for groceries purchased from stores.
Special aggregates generally confirmed that CPI is ever-so-slowly edging towards the Bank of Canada's 2 percent goal. Notably, CPI for all items except food fell 0.3 percent in June to stand 2.6 percent higher than a year ago. Two of the Bank of Canada's three preferred measures of core inflation edged lower in the month; the mean value of these measures is now almost exactly in line with headline CPI.
In the wake of today's release, most analysts are expecting the Bank of Canada to deliver another 25 basis point rate cut at its Governing Council meeting on July 24. This is the likeliest outcome, though the Bank may have some qualms about cutting when the pace of wage increases is above 5 percent, far higher than Canada's anemic productivity growth. A plethora of strikes across the country -- including, gasp, at liquor stores in Ontario -- suggests that upward pressure on wages is likely to persist. If the Bank delivers a rate cut next week, expect it also to warn that the pace of future reductions may depend on getting wage growth down to more acceptable levels.
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