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Canada’s inflation rate slides to 1.8% amid a disinflationary base effect from last year’s sales tax holiday
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Canada’s inflation rate eased to 1.8% in February, the lowest since July of last year.
The deceleration in the headline CPI year-over-year (YoY) growth rate can mostly be explained by the base effect resulting from the GST/HST holiday last year.
- The sales tax holiday started on Dec 15, 2024, and ended on Feb 15, 2025. Consequently, last February saw an artificially high month-over-month (MoM) inflation rate.
- As this sales tax-induced spike in the February MoM rate drops out of the YoY calculation, the base effect brings down the YoY inflation rate to 1.8%.
Among the subcomponents that were affected by the GST/HST holiday, food from restaurants is the most prominent example of the distortion effect.
- The 4.3% MoM price growth for food from restaurants in Feb 2025 is now replaced by a mere 0.1% MoM growth in Feb 2026, bringing the latest YoY inflation down to 7.8% from 12.27% in January.
- The disinflationary base effect will likely continue in March, as food from restaurants booked a 4.7% MoM increase in March last year.
On the other hand, the persistently high inflation rate for food from stores, which includes groceries, has garnered significant attention from the general public.
- The good news is that the inflation is receding, as the YoY inflation rate dropped to 4.1%, from 5% in December, after seeing a second flat (0%) MoM reading in the last three months.
The disinflationary trend also seems more broad-based than just the base effect from tax holiday.
Looking at the last three months’ reading of the so-called core measures—CPI-trim and CPI-median, both of which are preferred gauges of underlying inflation pressure by the Bank of Canada—we can see that inflationary pressure has been subdued. The annualized three-month inflation rate of CPI-trim was only 0.74% while that of CPI-median was 1.27%, both substantially lower than the central bank’s 2% target.
Looking ahead, the inflation picture in Canada will become more complicated in March as high energy prices resulting from the Iran War enter the CPI calculations.
Advertisement- Energy prices were already rising in February in anticipation of a US-Iran confrontation. The surge in gasoline prices will likely make the YoY rate for energy less negative.
- The low inflation rate in energy is mostly due to the removal of the consumer carbon tax last April. This base effect will disappear in May, which can potentially turn the energy picture upside down if the Iran War persists for an extended period.
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Canada unemployment rate rises back to 6.7% in February amid 83,900 job losses
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Canada Labor Market Summary—February 2026
Unemployment Rate: 6.7%
Total Jobs MoM Change: -83,900
Full-Time Jobs MoM Change: -108,400 ; Part-Time Jobs MoM Change : 24,500
Sectors less sensitive to US trade saw 81,400 jobs cuts
– US Trade Sensitive Industries comprises of Forestry, fishing, mining, quarrying, oil and gas; Transportation and warehousing; and Manufacturing
Wholesale and retail trade sector cuts 17,900 jobs; Other services lose 13,900 in headcount
Transportation & Warehousing sees a moderate rebound in employment
Strong growth in healthcare jobs finally stalled
Further Info
Full press release from Statistics Canada: Labour Force Survey, February 2026
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Canada GDP rebound masks lackluster domestic demand
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The Canadian economy saw a significant rebound in the third quarter. A 0.65% expansion in the quarter was more than enough to recover the downwardly revised 0.47% contraction in the previous second quarter.
Table1: Contributions to GDP Growth (ppts)
Date Household Consumption Business Investment Government Expenditures Change in Inventory Export Import Others Q2 2025 0.552 -0.015 0.313 0.936 -2.282 0.036 -0.006 Q3 2025 -0.059 0.008 0.020 -0.154 0.055 0.724 0.051 The economic revival was, nonetheless, driven largely by a sharp decline in imports. As can be observed from the contribution graph below, the decline in imports alone accounts for more than 0.7 percentage points (ppt) of the growth; that is even larger than the total growth rate.
Weak domestic demand as consumption falls
A useful way to gauge domestic demand is to look at the so-called Private Domestic Final Purchase (PDFP). This concept, popularized by the Federal Reserve in recent years, serves as an indicator to the domestic demand resiliency in the US economy. Here, it is calculated using Statistics Canada data on household consumption and business gross fixed capital formation.
In Q3, we saw a slight contraction of 0.07%.
This contraction was primarily the result of household consumption falling 0.1%, while business investment booked zero growth.Advertisement
The drop in import may be a combined result of business and consumer switching to domestic products (which is a positive sign) and a continued adjustment of external trade behaviors following the wide swing in the previous two quarters (which is noise).
However, given that overall consumption expenditure weakened significantly, it appears that the economy is hanging by a thread, making it difficult to celebrate this rebound.
Further considerations
Many analysts also cautioned that the international trade figures can receive substantial revision in coming months due to its reliance on US data, which was delayed due to the government shutdown.
According to StatCan, government investment also supported the economy, specifically regarding investment in non-residential structures (such as hospitals) and an 82% QoQ increase in defense weapon systems spending.
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Canada unemployment rate surges to 7.1% in Aug
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The unemployment rate in Canada has risen to 7.1% in August, the highest level since May 2016 outside of the pandemic era, Statistics Canada (StatCan) reported Friday.
The surge in the jobless rate was driven by a 66,000 drop in employment in August, which followed a 41,000 decline in July. The labor force also shrank in the last two months, bringing the labor force participation rate down by 0.3 percentage points since June to 65.1%.
Full-time employment accounted for 6,000 of the total, while decline in part-time positions represented the majority of the drop at 59,700. Outside of the pandemic era, August marked the first time since Nov 2019 that job losses occurred in both full-time and part-time employment at the same month.
Professional, scientific and technical services (-26,100), transportation and warehousing (-22,700), manufacturing (-19,200) as well as education (-18,400) sectors all cut a substantial number of jobs in the month. These job losses were only partially offset by the solid employment growth in construction (17,100) and accommodation and food services (9,200) industries.
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The job losses in the transportation and warehousing and education sectors mark a sharp reversal from the employment gains recorded in July, when those industries added 26,100 and 22,400 jobs, respectively.
This job report reveals an apparent weakness in the Canadian labor market that will likely drag down consumption demand—one of the few remaining bright spots in Q2 GDP report—impacting the third quarter’s economic growth.
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Canada retail sales up 1.5% MoM in June, likely followed by 0.8% drop in July
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Canada retail sales, in nominal terms, increased 1.46% month-over-month in June while core retail sales, which exclude gasoline and auto sales, was up 1.95%. However, Statistics Canada’s advance estimate shows that overall retail sales had likely declined 0.8% in July.
Core retail sales was driven up by higher sales at food and beverage retailers (up 2.3%), clothing, clothing accessories, shoes, jewelry, luggage and leather goods retailers (up 5.1%) as well as general merchandise retailers (up 1.6%).
In volume terms, total retail sales increased 1.5% and core sales were up 1.25%.
StatCan reported that 27% of the surveyed retail businesses said, in response to supplementary survey questions, that they were impacted by the trade tensions in June, down from 32% in May.
The retail sales data has been quite volatile in recent months as shown by a 1.19% drop in May preceding the sizable rebound in June. The three-month rate of change shows a -0.55% decline between May and July, suggesting underlying deterioration in consumer spending underneath the monthly fluctuations.
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Hong Kong soaks up HKD 30 billion from interbank market to defend currency peg
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Hong Kong Monetary Authority (HKMA) intervened twice in the foreign exchange market on Thursday (July 3) to soak up a total of HKD 29.6 billion from the city’s interbank liquidity market, as HKD exchange rate fell toward the weak end of its official trading band.
- The foreign exchange intervention, which sells USD to the city’s banks in exchange for HKD, will reduce the Aggregate Balance, the sum of all clearing account banks hold with the HKMA and a gauge of interbank liquidity in the city’s banking system, to HKD 114.5 billion when the foreign exchange transactions settled on Monday.
By absorbing liquidity away from the interbank market, Hong Kong Interbank Offered Rate (HIBOR) will likely rise from its unusually low-level back toward alignment with its US counterparts.
- Since HKMA injected HKD 129.4 billion into the interbank liquidity pool via four interventions in early May, the one-month HIBOR, which is the key interest rate tie to most variable mortgage rates in the city, dropped to three year-low and created a persistent HK-US interest rate gap above 3 percentage points.
- One-month HIBOR on Friday edged up to 0.86%, from 0.71% on the previous day; 30-day SOFR was 4.32% at Thursday closing.
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Dallas Fed’s Logan cites neutral rate uncertainty as reason to ‘proceed cautiously’ on rate cut
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Lorie Logan, president of Dallas Fed, expressed worry about uncertainty surrounding the exact level of neutral rate of interest and hinted at the risk that the Federal Reserve’s policy rate might already near the point which further rate cut can start to fuel inflation again, in a speech to an energy conference on Wednesday.
Logan cited two point estimates of the neutral real interest rate, published by New York Fed and Richmond Fed, indicating that the rate could range from 0.74% to 2.6% in real terms; or, 2.74 to 4.6% in nominal terms after taking the central bank’s 2% inflation target into account. That upper estimate already exceeded last week’s Fed fund rate of 4.58%.
“[W]hen policymakers look at mid-range estimates that suggest there’s meaningful room to cut before reaching neutral, I think we should recall the technique of a ship captain whose depth finder might mistake mud for water,” Logan noted, saying the central bank should “proceed cautiously” when cutting rate further and that a below-neutral level of interest rate could reignite inflation in the US.
Logan also mentioned potential upside risk to inflation — stemming from a “possible post-election surge” in business investment and potential supply chain disruptions and geopolitical developments — as well as downside risk to employment resulted from tightened financial conditions as factors that she is keeping an eye on.
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US consumers continues to drive strong GDP growth
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US GDP increased by more than 2.8% at an annualized rate in Q3, supported by continued acceleration the growth of personal consumption expenditures.
Consumption increased close to 3.7% over the quarter, the fastest growth rate since Q1 2023, and contributed 2.46 percentage point to Q3’s overall growth rate. The solid economy expansion, also supported by positive contributions from investment and government expenditures, was offset by higher level of import and slower increase in inventories.
Looking at private domestic final purchases, a gauge of domestic demand which excludes the effect of government consumption, trade and inventories and is often cited by Federal Reserve officials, showed that local expenditures accelerated to almost 3.2%, from 2.7% in Q2.
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Eurozone economy shows resilience with 0.4% GDP increase in Q3
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Eurozone GDP quarterly growth rate sped up to 0.4% in Q3, an upside surprise compared to an expectation of 0.2% increase, countering widespread worries that the currency bloc is sliding into economic stagnation.
The resilient growth was support by strong growth in both Ireland (2%) and Spain (0.8%), solid reading in France (0.4%) as well as a rebound in Germany (0.2%).
Bert Colijn, ING’s Chief Economist of The Netherlands, warned against reading too much into the acceleration in growth as Irish GDP are “notoriously volatile” given that it’s prone to the influence of multinational accounting activity. The French GDP is also likely boost by the Olympics in the summer.
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Bank of Canada not sure about exact level of neutral rate, Macklem says
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Bank of Canada isn’t entirely sure what the country’s natural rate of interest is and the central bank will have to discover it over time, said Governor Tiff Macklem in a Toronto event.
“We don’t really know what it is,” Macklem said, “and we’re going to have to discover what that is over time.” He also suggested it’s uncertain what is the exact pace and landing point in this rate cut cycle.
The Canadian central bank in April updated its estimate for the country’s neutral rate to the range of 2.25% to 3.25%.
Sources:
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US Retail sales up just 0.1%, still beats expectations
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Retail sales in the US increased just 0.05% on a monthly basis in August, down from the outsized 1.15% growth in July but still beats market expectation of -0.2%, according to the Census Bureau’s latest release.
The Federal Reserve begins its two-day meeting on Tuesday and retail sales is the last major economic release on US consumer demand before the central bank announces its decision on Wednesday. Two-year treasury yield briefly rose above 3.6% after the retail sales reading.
Excluding motor vehicle and parts, sales rose 0.1%, slightly undershot the 0.2% consensus estimate.
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ECB cuts rate to 3.5% as it scales down growth forecast
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The European Central Bank reduced the deposit facility rate, its policy interest rate anchor, by a quarter of a percentage point to 3.5%, as the central bank slightly lowered its economic growth forecast.
Via ECB’s X account [https://x.com/ecb/status/1834217239295262964/photo/1] The GDP growth rates projected by ECB staff are now 0.8% in 2024, 1.3% in 2025 and 1.5% in 2026, with all three down 0.1 percentage point from the June forecast. Staff projection for core inflation in the eurozone are now 2.9% this year and 2.3% in 2025, both 0.1 percentage points higher than its previous estimates, as well as 2% in 2026 which was held unchanged.
The decision to cut interest rate by 25 basis points was unanimous among members of ECB Governing Council, said Christine Lagarde, president of the central bank, during the post-meeting press conference.
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Canadian’s average carried over credit card balances highest in 14 years, Equifax reports
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The average carried over credit card balances for Canadian consumers topped CAD 4,300 in Q2, reaching the highest level since 2007, Equifax Canada said in its latest Market Pulse Consumer Credit Trends and Insights Report. This came as total outstanding credit card balances increased 13.7% YoY to CAD 122 billion.
The increasing carried over balances, which like resulted in expensive interest charges by the issuing bank, is mainly a result of lower card pay rates, with younger consumer, those under 35 years old, had the fastest decline in card payment levels.
Mortgage holders also saw a faster jump in outstanding credit card balances with a 11.9% YoY increase, compared to 7.7% for non-mortgage holder.
Overall consumer debt increased 4.2% YoY
The macro picture is that consumer lending increased to CAD 2.5 trillion, up 4.2% since Q2 last year, and delinquency rate for non-mortgage balance rose to 1.4% in Q2, the highest level since 2011.
The good news was that delinquency rate for mortgage balances was still 0.16%, still a bit lower than the pre-pandemic 0.17%.
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Canada inflation slows further to 2.5% in July
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Inflation in Canada decreased to 2.53% at an annual basis in July, the second consecutive drop and reached the slowest growth rate since March 2021, Statistics Canada reported on Tuesday.
The two core inflation measures favored by the Bank of Canada (BoC)— CPI-trim and CPI-median, both of which exclude volatile components in CPI calculations — continued to edge toward the central bank’s 2% inflation target, down to 2.65% and 2.37%, respectively. This marked the forth month in a row that both readings are within BoC’s acceptable inflation range of 1%-3%.
Drop in prices for travel tours, which is falling 2.8% year-over-year due to base effect from a 15.5% monthly shoot up in prices last July, and for passenger vehicles, which decreased 1.4% annually, are cited by the StatCan as major drivers leading the headline CPI figure lower.
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Fed’s Daly, Kashkari support rate cut talks in September meeting
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San Francisco Fed President Mary Daly said it’s time to consider lowering the Federal Reserve policy rate in the upcoming meeting in September as she gained “more confidence” that US inflation is under control and saw little evidence that the economy is heading for a deep downturn from recent data, she said in a Financial Times interview conducted on Thursday.
Inflation has been making gradual progress towards the Fed’s 2% inflation after the first quarter, and while the target has yet been met, ‘it’s clearly giving me more confidence that we are on our way to price stability,” Daly said.
Kashkari opens to September rate as balance of risk shifted
Federal Reserve Bank of Minneapolis President Neel Kashkari (left) and Federal Reserve Bank of Chicago President Austan D. Goolsbee participate in the Federal Open Market Committee (FOMC) meeting at the William McChesney Martin Jr. Building in Washington, D.C., held on January 30-31, 2024. Photo via Federal Reserve Flickr Minneapolis Fed President Neel Kashkari also said “the balance of risks has shifted” so it’s appropriate to debate a potential rate cut in the upcoming FOMC meeting, in an interview with the Wall Street Journal.
Kashkari added that he has observed “some concerning signs” in the labor market while “inflation is making progress,” hence it’s good to change the discussions toward lowering policy rate.
“I’ll probably be in the camp of, ‘Hey, let’s take a more measured approach because we don’t know where our destination is going to be,” Kashkari said, explaining why he doesn’t support drastic actions though in the , “if we saw some quicker deterioration in the labor market, then that would tell me, ‘Well, we need to do more, quickly, to support the labor market, even if we have uncertainty about where our ultimate destination is going to be.”
“I’m still unclear how tight policy is, but the balance of risks in my view have shifted more towards the labor market and away from the inflation side of our dual mandate,” said Kashkari.
Daly holds a vote in this year’s FOMC meetings, while Kashkari is a non-voting member.
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US CPI down to 2.9% in July as disinflation continues
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US headline CPI down to 2.9% in July, lowest since March 2021 and lower than the expected 3%. Meanwhile, core CPI, which strips out food and energy prices, rose 3.2% annually, matching market expectations, according to the latest readings from the Bureau of Labor Statistics.
Core CPI saw further encouraging signs of inflation normalizing in the three months to July, as the three-month annualized inflation dropped to 1.58%, lowest since Feb 2021.
Monthly rate of increase for core CPI was 0.165% in July, which is the growth rate which is consistent with 2% annual growth rate.
Shelter cost continued its more-gradual-than expected slowdown in annual rate, dropping to 5.05% in July. Nonetheless, rent actually increased in both yearly and monthly terms for the month — year-over-year up from 5.075% to 5.089%, while month-over-month increased from 0.261% to 0.488%.
The increase in shelter index contributed more than 70% of the increase in core inflation, according to the BLS.
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UK sees both unemployment rate, wage growth drop in June
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Unemployment rate in the UK decreased to 4.2% at the three months to June, against a market expectation of rising from the May reading of 4.4% to 4.5%, the Office for National Statistics (ONS) reported Tuesday.
The drop coincided with a further slowdown in total earnings growth rate to 4.5%, in nominal terms, easing a major worry facing the Bank of England that elevated wage would keep service inflation at high level.
The surprising decrease in jobless rate came as employment rate, the percentage of population that holds a job, rebounded to 10 basis point to 74.5% from a 2021 low for the period of March to May.
The country’s central bank cut its policy rate to 5% at the start of this month to “reduce slightly the degree of policy restrictiveness” but remain concern that the second-round effects, as higher earnings increase may push retailers to rise their prices further, could be “more enduring in the medium term.”
Catherine Mann, an external member of the Bank’s monetary policy committee, expressed her worries in a Financial Times interview this week that wage pressures in the economy could take years to dissipate while goods and services prices may increase again.
ONS have cautioned against interpreting short-term changes in the its labor force statistics due to response rate bias since the they introduced by-telephone survey during the pandemic.
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Fed’s Bowman still sees ‘upside risks’ to US inflation
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Federal Reserve governor Michelle Bowman is worried about reacceleration in cost of living, saying that she ‘still see some upside risks to inflation’ in her prepared remarks to a Kansas Bankers Associations event Saturday.
While her baseline was still that ‘inflation will decline further with the current stance of monetary policy’ and it will soon be appropriate to cut rate, Bowman stated several reasons that inflation may jump up again.
Disinflation tailwind waning
Contributions from the supply-side, including easing of supply chain constraints, increased availability of labors resulted from increased immigration and elevated labor force participation, are likely close to be exhausted, Bowman noted, making it likely that the the disinflation will be much slower than last year.
Recent surge in costs for container shipping originating in Asia, partly a result of geopolitical developments, is one of the upside risk factors Bowman cited. She worried further geopolitical disruptions could push food, energy, and commodity prices further up.
She also mentioned that increased immigration, which have so far helped bring down wage pressure, could on the other hand lead to persistently high housing services inflation. Given that new immigrants inflow may concentrate in certain cities, with low inventory of affordable housing available, rent could potentially drive rent higher.
Weak July jobs report likely result of temporary factors
Bowman also casted doubt on the idea that the much-weaker-than-expected July jobs report is a signal that the US economy was headed into a recession, saying it’s “likely that some temporary factors contributed to the soft July employment report.”
‘[W]ith some upside risks to inflation, I still see the need to pay close attention to the price-stability side of our mandate while watching for risks of a material weakening in the labor market,” Bowman concluded.
Bowman’s speech: Update on the Economic Outlook, and Perspective on Bank Culture, M&A, and Liquidity
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Bank of Canada names ex-central bankers, University of Calgary professor as external experts for Covid era policy review
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The Bank of Canada’s (BoC) Governing Council named three external experts to conduct an independent assessment on the central bank’s review on its Covid era exceptional actions, such as quantitative easing and extraordinary forward guidance, the BoC said in a release Thursday.
Former Bank of Spain Governor Pablo Hernández de Cos, ex-Bank of England’s Monetary Policy Committee member Kristin Forbes and Trevor Tombe, professor at the University of Calgary’s Department of Economics, form an external expert team to evaluate whether the central bank’s internal review is comprehensive and balanced.
The internal review, which will assess the effectiveness of the extraordinary actions, identify lessons learned, as well as to point out “key questions to guide future discussions should the need for exceptional policy measures arise again in the future,” will be published together with the external expert assessment near the end of this year.
Cover Photo: Bank of Canada Head Office. Photo via Bank of Canada’s Flickr
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US initial jobless claims falls to 233,000, lower than expected
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The number of people filed their initial claim for unemployment insurance benefits in the US fell to 233,000 in the week ending August 3, which was 17,000 lower compared to the previous week on a seasonally adjusted basis, the US Labor Department reported Thursday. The market estimate compiled by Dow Jones was 240,000.
- With the initial jobless claim less than expected, it serves as a small relief to investor who feared the US economy have already entered a sharp downturn following a much-weaker-than-expected nonfarm payroll reading in July.
- S&P 500 index rose more than 1.5% in early trading Thursday.
Insured unemployment, which gauge the share of people covered by unemployment insurance that are currently receiving the benefits, remained at 1.2% for the ending July 27.
Continued unemployment insurance claims, the total number of people who received the benefit for more than a week, increased 6,000 to 1.875 million in the week ending July 27, highest level since late November 2021.
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Bank of Canada July meeting minutes reveal growing concerns on slowing labor market, consumption
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Bank of Canada officials were increasingly concerned about potential risk of consumption slowdown amid growing slack in the labor market and excess supply in the economy when they cut interest rate during July 24 meeting, the central bank’s summary of deliberations showed.
The central bank’s officials still expected consumer expenditures to strengthen next year given strong population growth, even though it’s assumed to slow soon. Nonetheless, quite a number of risk factors that may challenge their expectation were mentioned in the minutes.
Fear of growing labor market slack
Top of their mind was the risk of further weakness in the labor market. Governing Council members noticed that slack was growing in the job market, citing evidence such as new entrants to the labor force found harder to land a job, job vacancies returned to historical average and Canadian Survey of Consumer Expectations had indicated increased pessimism on job prospects.
Continued job market slack can build up excess supply in the economy which only will “delay the rebound in consumption” but also insert downward pressure on growth and inflation, central bank officials worried.
Economic rebound remains baseline BoC’s forecast
Nevertheless, the Governing Council’s baseline is still that excess supply will gradually be absorbed as GDP growth picks up and potential growth moderates due to slower population growth. Canada’s GDP is forecasted to grow 2.1% in 2025 and even faster at 2.4% in 2026, from the expected rate of 1.2% this year, according to the Bank’s July Monetary Policy Report.
During press conference after July 24 meeting, Bank of Canada Governor Tiff Macklem said that the Canadian economy have not experienced “big losses in labor market” of yet but just slower hiring. He added that the central bank “want to see growth pick up and job market strengthen” to combat downside risks on economic growth as well as inflation.
Cover Photo via Bank of Canada’s Flickr
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US PCE inflation drops to 2.5% as disinflationary trend continues
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Inflation in the US cooled off further to 2.5% over the year to the end of June, according to the latest reading of US Bureau of Economic Analysis’s PCE price index. Stripping out energy and food prices, core inflation remained at 2.6%, same as in May. Both headline and core inflation year-over-year readings were in line with market expectations.
Core PCE inflation, Federal Reserve’s preferred inflation gauge, showed encouraging signs of disinflation through out Q2. Annualized three-month core PCE inflation fell to 2.3% for Q2, down from 4.48% at at the end of March, though not as low as 1.55% achieved at the end of Q4 last year.
Market still firmly believed that the first rate cute in this interest rate cycle will happen at the Sept 18 meeting, as indicated by Fed Funds futures pricing right after the figures was released. Analysts expect Fed Chair Jerome Powell to use next week’s meeting to signal the central bank’s openness to kick off the easing cycle.
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US GDP grows at 2.8% in Q2 as consumer spending remains strong
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US GDP grew at a 2.8% annualized rate in Q2, significantly above than the 2% forecasted by market consensus. The resilient growth was supported by acceleration in consumer spending, increase in nonresidential fixed investment as well as an upturn in private inventory investment, according to the Bureau of Economic Analysis.
Consumption is the major driver to economic growth in the quarter, generating a sizable 1.57 percentage points (ppts) of growth. Increase in inventory change contributed another 0.82 ppts while investment contributed 0.64ppts. Net export, dragged by a close to 7% increase in import, is the only expenditures segment that contributed negatively.
Final sales to domestic purchasers, which is the sum of personal consumption expenditures and gross private fixed investment and is a figure that doesn’t subtract the spending on imports, increased 2.6% in Q2, the same rate as in the first quarter and continued to signal strong spending pattern in the US economy.
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UK retail sales drops 1.2% in June due to poor weather, election uncertainty
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Retail volume: -1.2% MoM (May: 2.9%); -0.2% YoY
Monthly growth rate of UK retail sales volume fell 1.2% in June, after a 2.9% increase in the previous month. The data series has been quite volatile since November with significant increases usually followed by a substantial decline in the following month.
The fall was driven by 2.1% drop in non-food stores sales, which comprises of department, clothing, household and other non-food stores, as the ONS cited “election uncertainty, poor weather, and low footfall“ as factors behind the decline.
Meanwhile, “poor weather and economic conditions” are blamed for the 1.05% drop in food stores retail sales. The fall was mostly seen in supermarket, ONS added.
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Canada inflation drops back to 2.7% in June
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Annual inflation rate in Canada eased back to less than 2.7% in June after a upshot in the previous month, according to Statistics Canada’s CPI report Tuesday. The two core CPI readings preferred by the Bank of Canada — CPI-trim and CPI-median — also slowed down to 2.86% and 2.62%, respectively, easing concerns that inflation had sped up again.
Canada CPI June 2024: 2.7% YoY
CPI-trim: 2.9% YoY, CPI-median: 2.6% YoY
The three-month CPI growth rate over the second quarter was just a bit over 2%, at an annualized rate, successfully hitting the Canadian central bank’s inflation target. The core inflation measures also stayed at around 2.9%, within Bank of Canada inflation target range of 1%-3%. These numbers seems to validate the central’s decision to kick off its rate cut cycle in June.
Canada CPI June 2024: 2% (3-month annualized rate)
CPI-trim: 2.9% YoY & CPI-median: 2.9% (3-month annualized rate)
The June CPI figures nonetheless showed that food prices continued the acceleration. The food index rose 2.8% over the year, up from around 2.4% in the previous two months. The rise was driven by two months of elevated monthly growth of 0.85% in May and 0.53% in June.
StatCan mentioned that dairy products, fresh vegetables, non-alcoholic beverages, as well as preserved fruit and fruit preparations as some of the food purchased from stores categories that recorded higher yearly price growth rate in June.
Canada Food CPI June 2024: 2.8% YoY
Food CPI: 0.5% YoY
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US nonfarm payroll beats expectations in June amid signs of cooling off
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Nonfarm payroll: 206,000
(May:218,000 ; 3-month average: 177,000)
US nonfarm payroll increased by 206,000 in June, beating market expectation of 190,000, amid signs that job growth in cooling off as the the Bureau of Labor Statistics revised down the May and April by a combined 111,000 in its report released Friday.
Unemployment rate: 4.1%
(May:4%)
Unemployment rose 0.1ppt for the third consecutive months, bring the figure to 4.1%, above analyst consensus of 4%. The jobless rate has increased by half a percentage point over the past year.
Average hourly earnings growth YoY: 3.86%
(May:4.05%) ; MoM: 0.29% (May:0.4%)
Another sign of continued cooling is the growth rate of average hourly earnings which fell to 3.86%, the lowest level since May 2021. Annualized three-month hourly earnings growth also dropped to 3.62%.
Labor force participation rate: 62.6%
(May:62.5%)
Labor Force participation little changed in June, rose just 0.1ppt to 62.6% and continued remain in the range of 62.5%-62.7% since the start of the year. If we look at prime-age participation rate, we a upward momentum as the rate rose 0.1ppt for three months in a row.
The figures appears to support Federal Reserve Chairman Jerome Powell’s comment on Tuesday morning that the US labor market is “cooling off appropriately” and going to the right direction of not heating up again.
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US Job openings increases to 8.1 million in May, JOLT report shows
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The total job openings in the US was 8.14 million on the last business day of May, the Bureau of Labor Statistics said in its Job Openings and Labor Turnover (JOLT) report Tuesday, up from a downwardly revised April reading of 7.92 million, marking the first monthly increase vacancies since February.
Job openings rate, which is a ratio of the number of available jobs to the sum of employment and job openings, also increased by a tenth of a percentage point to 4.9%.
The timid increase in job availability was accompanied by 5.76 million additions in payrolls during the month, which was 141,000 higher than the figure in April and helped boost hire rate by a bit to 3.6%.
Both readings support the argument that labor market is still resilient without notable signs of deteriorations. Federal Reserve Chairman Jerome Powell on Tuesday morning said, during a panel in a ECB monetary policy forum in Portugal started prior to the release of JOLT figures, that the US labor market is “cooling off appropriately” and going to the right direction.
The number of job vacancies per unemployed people in the US remain at 1.22 following the May figures, a similar to the 2019 pre-pandemic level which was considered as a “hot” job market back then.
“The labor market is not heating back up. But after several years of declines, job openings might be, and — perhaps more importantly — need to be leveling off to preserve the current health of the labor market,” wrote Nick Bunker, Economic Research Director for North America at the Indeed Hiring Lab, in a blog post.
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US PCE price index shows zero monthly inflation in May
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US PCE price index showed 0% monthly inflation in May, same as the headline CPI reading reported earlier, showing signs that inflation is again decelerating.
Core PCE, which excludes energy and food prices, rose less than 0.1% in the same month, the lowest since November. For yearly growth rate, both PCE and core PCE increased close to 2.6%.
The readings, alongside with a 0.2% month-over-month increase in personal consumption expenditure, which was merely a step higher than the 0.1% in April, supports market narrative that consumption sentiment has weakened in Q2 and helped easing inflationary pressure in the US economy.
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Canada inflation rebounds to 2.9% in May
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Inflation in Canada rebounded to a 2.9% year-over-year increase in May, after the StatCan reported the slowest consumer price increase in more than two years in the previous month.
The re-acceleration came as the CPI rose 0.31% over the month after seasonal adjustment, the fastest monthly growth rate since December.
Bank of Canada’s two inflation targeting benchmarks, CPI-trim and CPI-median, still fell within the central bank’s acceptable range of 1%-3% despite the upswing.
StatCan cited higher prices for certain services, including travel tours, rent and air transportation, as drivers for higher headline CPI inflation. Prices for travel services rose almost 12% in May, leading to the year-over-year growth rate to 4.4%, up from zero change in April. Demand for travel tours, along with air transportation, are driven by increased trips to the US, the national statistical office added.
Meanwhile, as monthly increase in rent jumped to 0.9%, rent inflation sped up to close to 9% for the year ending May, up from 8.2%.
Food prices also saw a notable increase last month with a 0.9% MoM rise, highest since Jan 2023.
Bank of Canada earlier this month cut its policy interest rate by a quarter percentage points to 4.75%, partially on the basis that the 3-month annualized rates of core inflation slowed to under 2% in March and April. The 3-month rates, however, jumped back to 2.7% for CPI-trim and 2.3% for CPI-median following the release of latest CPI figures.
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BoE holds rate at 5.25% with ‘some’ officials signal eagerness to cut
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Bank of England held its policy interest rate at 5.25% with a 7-2 vote amongst officials at its Monetary Policy Committee. While the central bank’s decision was widely expected, the meeting minutes showed that some of the MPC members who voted to hold rate unchanged thought their decisions were “finely balanced”, signaling their willingness to lower rate in upcoming meetings.
“Some” of those officials decided that the still elevated service price inflation as shown in the May CPI report “did not alter significantly the disinflationary trajectory” that UK is already on. Service CPI rose 5.7% over the year to May, 0.4 percentage point higher than the Bank’s projection in it latest Monetary Policy Report.
The some other MPC members, on the other hand, thought the service inflation signified that the “second-round effects” of increased cost of living may persistently keep UK’s underlying inflation at a higher level. This fraction of officials were seeking “more evidence of diminishing inflation persistence” before they can commit to lowering the base rate.
The Office of National Statistics this week reported that headline inflation in the UK returned to BoE’s 2% in May, while core inflation, which excluded energy and food prices, dropped to 3.5%.
The Bank had previously projected that headline CPI annual growth would drop to 2% in the middle of this year but would jump back up to around 2.4% in July as the favorable base effect from last year’s energy price drop dissipates.
The two dissenting votes, by Swati Dhingra and Dave Ramsden, both preferred to cut the interest rate by a quarter of a percentage point. They think a less restrictive monetary policy is needed to ensure “a smooth and gradual transition in the policy stance, and to account for lags in transmission.” Both Dhingra and Ramsden had voted to cut the rate to 5% in the May meeting
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