Canada: Inflation should be somewhat sticky in the medium-term – NFB

Data released on Wednesday showed inflation slowed in Canada in June. The Consumer Price Index rose 3.1% from a year ago, after rising 0.3% during the month (consensus: 0.4%). According to analysts at the National Bank of Canada inflation should be somewhat sticky in the medium-term; they see underlying inflation in the upper limit of the central bank’s target over the next quarters. 

Key Quotes:

“The inflation print for June surprised a little on the downside, showing a weaker growth than expected. This contrasts with the US were inflation has been outpacing consensus for the past few months. That said, the print for June is likely a better reflection of where the Consumer Price Index currently sits. Recall that in June of last year, inflation had risen a significant 0.7% m/m (seasonally adjusted data) which translated into a negative base effect for this latest report. Notwithstanding this lower annual headline figure, CPI is running at a hot 4.4% annualized rate over the past 3 months.”

“While some may point to this latest report as an example that recent inflationary pressures are a transitory phenomenon, we maintain our view that inflation should be somewhat sticky in the medium-term.”

“In the long-term, we continue to see this cycle as much more conducive to above-target inflation. Both monetary and fiscal policy are expected to stay very stimulating for some time and protectionism/deglobalization as well as the ecological transition are suggesting a regime change for inflation. In sum, we are still seeing underlying inflation in the upper band of the central bank target range in 2021 and 2022.”