The big Canadian banks on the BoC following today's CPI release

BMO: The modest uptick in core inflation fits nicely with the Bank of Canada’s view that underlying trends will gradually pick up over the next 12-18 months. And while trends remain low, recall that the BoC was willing to hike rates in the face of the lows for core, with the view that these trends would turn higher in coming months. By the same token, the still-low pace of headline and core inflation suggests there is certainly no urgency to move quickly (i.e. at the September meeting). Barring a major shock, we believe an October rate hike remains on track.

CIBC: With the worm also starting to turn for measures of core inflation, the BoC should be gaining confidence that price pressures are firming. We were confident that inflation would turn higher again in the third quarter, and July’s figures show this process starting a month earlier than we had anticipated. Indeed, with food and energy turning to modest positives, and core inflation looking a little hotter, headline CPI could be close to 2% by November. Further strengthening in the months ahead would give the BoC enough comfort to raise rates again in October.

RBC: When they meet next month, the BoC’s Governing Council will once again be weighing sub-target inflation against further strengthening in activity (we expect Q2 GDP +3.7% vs. the BoC’s 3.0% forecast from July) and robust job growth. Faced with that same tradeoff in July, policymakers opted to raise the overnight rate, anticipating that tighter economic conditions will eventually put upward pressure on prices. They are likely to maintain that view, particularly as stronger Q2 GDP growth points to remaining economic slack being absorbed sooner than expected. But until there are clear signs of inflationary pressure emerging, we think the central bank will be fairly cautious in removing accommodation. A September rate hike can’t be totally ruled out, but we think a move in October is more likely when the bank refreshes their economic projections.

Scotiabank: Canada’s inflation rate continues to be on the mend and drifting higher in support of a continued pace of monetary policy tightening. The key is that the downsides appear to have stopped. In turn that should give the BoC further conviction to continue raising its policy rate following quarterly growth that has averaged around 3 ½% over the past four quarters up to Q2 with lagging influences upon inflatin and independent of the early evidence of softening growth in Q3. Canada needs softening growth at the margin with shut spare capacity lest such a torrid rate of growth create sharp inflation upsides. Our view is that after a string of strong growth figures we look to moderating quarterly growth still averaging above the economy’s noninflationary speed limit. There is absolutely nothing in this report that challenges the BoC’s forecast narrative as inflation is tracking their revised views that backed a hiking bias. At the margin, the data reaffirms our more hawkish bias toward the BoC than the street consensus and market pricing.

18 Aug 2017 - 16:33- Fixed IncomeData- Source: BMO/CIBC/RBC/Scotiabank

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