Core CPI at 1.

7% in June July 23, 2010

Canadian CPI: Core inflation declines slightly in Canada: Total inflation and core inflation (Bank of Canada)
5.0

June
% (y/y)
4.5
4.0
CPIX (+1.7%)
Total CPI : Latest (y/y) : +1.0 (actual) +1.0% (forecast) 3.5

previous :+1.4% 3.0

CPIX : Latest (y/y): +1.7% (actual) +1.9% (forecast) 2.5

Previous :+1.8% 2.0

1.5
1.0
FACTS: Headline CPI inflation declined to 1.0% in June 0.5
from 1.4% in May. The core CPI decelerated to 1.7% year- The Bank of Canada’s CPIX
0.0
target range
over-year from 1.8% reported last month. On a monthly basis, -0.5 Total (1.0%)

headline CPI fell 0.2% (seasonally adjusted), the same rate of -1.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
decrease observed in May. Core inflation is up 0.1% on the
month, the same rate of increase as in May. The recreation,
education & reading (+0.5%), shelter (+0.2%) and household Shelter keeps accelerating
Shelter component of the Canadian CPI (26.6% ot total CPI)
operations, furnishings & equipment (+0.2%) components
experienced the largest gains while clothing and footwear (- 14 %
0.7%) and transportation (-0.7%) lagged (m/m, seasonally 12
adjusted basis). On a regional basis, Ontario (+1.6%) posted 10 3-month annualized: 5.4%

the highest inflation numbers (y/y) while Saskatchewan 8

(+0.3%) and Quebec (+0.4%) lagged. 6

4
OPINION: Core inflation in Canada decreased somewhat 2
from 1.8% in June to 1.7% in May. Shelter, the heavy weight 0
component of the CPI, which accounts for 26.6% of the total -2
index, rose 0.2% on a non-seasonally adjusted basis and a y/y: 1.6%
-4
strong 0.5% on a seasonally adjusted basis. This component
-6
of the CPI keeps accelerating. On a year over year basis
-8
shelter is now up 1.6% and a whopping 5.4% on a three 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
month annualized basis, the highest rate since 2008.
Moreover, the mortgage interest cost was flat for a second Policy leaves “considerable stimulus in place”
consecutive month in June a first occurrence since the Core inflation and real policy rate
beginning of the recession. In an increasing rate environment
7 % Spread (core inflation
the year over year growth of this component will become less minus real policy rate)
6
negative over time. Like we said in our June report, shelter is 5 Core inflation
a highly cyclical component and its rising trend should persist 4
going forward on a year over year basis. Although core 3
inflation slowed down a bit in June, that does not appear to us 2
to be a sufficient reason for the Bank of Canada to change its 1
game plan. In fact, the gap between core inflation and the real 0
policy rate is still too large in a context where the domestic -1
economy is on the verge of expansion and Canadian trading -2
partners remain on a recovery track. -3 Real policy rate
-4
-5
Yanick Desnoyers/Matthieu Arseneau 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10

ECONOMICS AND STRATEGY GROUP – 514.879.2529

Stéfane Marion, Chief Economist and Strategist
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