On Friday, Statistics Canada will release the CPI inflation number for August and the July retail trade figure.
On the inflation front, LBS Economic Research and Strategy expects a read just a tad above consensus (0.0% vs -0.1% m/m and 2.9% vs 2.8% y/y). July total CPI inflation at 3.0% y/y was the highest reading in almost seven years. Back then, we discounted the measure has unlikely to have an impact on the Bank of Canada’s interest rate outlook because 0.4pp of the 0.5% month-over-month move in the index was explained by idiosyncratic factors. For instance, we noticed unusual spikes in air transportation costs and travel tour prices (see chart).
In August, recent history suggests that a pullback in those components is to be expected. However, contrary to some other economic forecasters, we do not anticipate a complete reversal of the 16.4% m/m increase in air transport costs. Information we could gather suggests that a moderate decline in air transportation costs is more likely. Besides, lower gasoline prices coupled with low seasonal increases in other CPI subcomponents should keep the August headline m/m number at 0.0%.
For retail trade, we stand somewhat below consensus (-0.1% vs 0.3% m/m) and expect it to disappoint for a second month in a row. Indeed, on the consumer front, a 3.1% decline in new motor vehicle sales in July is weighing on the headline numbers. Elsewhere, higher home resales transactions in July likely fuelled sales of building construction materials and other housing-ticket items but not by enough to offset the negative impulse. More broadly, after a very strong 2017, higher interest rates continue to slow down credit growth and, thereby, consumption.
Canada CPI (August) and Retail Sales (July) Preview