New UWES articles, CPI data, and more!
Written By: Benjamin Pipicelli, Lexx Thomson, & Dorje Gyaltsen
Economics Newsletter – July 28, 2023
Canada’s Economy at a Glance
Author’s Commentary
Canadian CPI in June
Canadian inflation decelerated to 2.8% year-over-year in June, from 3.4% in the prior month and two ticks below the consensus estimate (3.0%). However, with the deceleration in headline inflation largely due to gasoline prices being compared to the very peaks witnessed in 2022, and with core measures of inflation showing decidedly mixed measures, the weaker headline figure doesn’t mean we can sound the all-clear for interest rates just yet.
Headline CPI rose by 0.1% in June on both a seasonally adjusted and unadjusted basis. The 2.8% annual rate was the lowest since March 2022, with the deceleration mainly due to gasoline prices which were down 21.6% year-over-year in June following an 18.3% decline in May. A smaller monthly increase in car prices this year compared to last year also helped bring the headline year-over-year rate lower, as supply chain disruptions have eased relative to 2022. Mortgage interest costs remained the primary driver of year-over-year inflation, and excluding that component, inflation sat at exactly 2.0% in June.
News and Noteworthy
Resist major portfolio changes despite rates peaking, money managers say
With interest rates likely peaking, investors should consider small tweaks to their portfolio to boost their returns, but “wholesale changes” should mostly be avoided, money managers say. “While we may be getting closer to a peak in central bank interest rates, monetary policy (including quantitative tightening) is very likely to remain restrictive for some time. We always advocate for minor adjustments to clients’ long-term asset mix, as opposed to wholesale changes,” Rob Spafford, vice-president and portfolio manager at Cidel Asset Management, told Yahoo Finance Canada. Read more.
Fed’s preferred inflation measure shows cooling price increases in June
The Federal Reserve’s preferred inflation metric grew in June at its slowest annual rate since September 2021. The Personal Consumption Expenditures (PCE) Index grew 3.0% year-over-year in June, down from 3.8% the month prior and in line with expectations. “Core” PCE, which excludes the volatile food and energy categories, grew 4.1%, down from 4.6% from the month prior and below the 4.2% economists surveyed by Bloomberg had expected. “Inflation is moving in the direction that will be liked by the Fed,” Wells Fargo senior economist Tim Quinlan wrote on Friday. Read more.
Canadians expect food prices to keep going up: Yahoo/Maru poll
A majority of Canadians believe grocery prices will continue to rise, a new Yahoo/Maru Public Opinion poll has found, even as the country’s overall inflation rate returns to the Bank of Canada’s target range. The survey of 1,527 Canadian adults found that 71 percent of Canadians believe food costs at their local grocery stores will be even higher six months from now. Another 26 percent expect prices will likely remain the same in six months, while just 3 percent believe that the cost of food will fall in that time frame. Read more.
Canada’s green subsidies a ‘bankable gap’ weaker than U.S.: report
From producing hydrogen to mining and refining ingredients for batteries, Canada’s incentives for low-carbon industries lag those in the United States despite attempts to level the playing field in the last federal budget. Based on an analysis of 10 low-carbon technologies in both countries, the think tanks highlight multiple gaps in Canada for “bankable” funding, the type which companies rely upon to greenlight investments. Those funds do not include less certain revenue, like Canadian carbon-credit sales or grant programs. Read more.
Time to celebrate falling inflation? Not yet, Desjardins says
Even though headline inflation finally fell back to within the Bank of Canada’s target range in June, anyone who pulled out their party hat to celebrate might have jumped the gun, according to Desjardins. “Can policymakers rest easy? We’re not so sure,” Royce Mendes, managing director and head of macro strategy, said in a report on Thursday. “Despite the welcome drop in headline inflation, the June price data show that the share of components rising faster than 5% per year remains above 50%.” Read more.
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