Canada Stocks Gain 90 Points After Fresh Inflation Data

Last Updated: Tuesday, August 16, 2022 4:17 PM | MT Newswires

Canada's main stock market, the Toronto Stock Exchange, put behind it a day and a half of fairly flat trading in building up some positive momentum over the second half of Tuesday's session and eventually closing it out up 90 points at 20,270 amid fresh signs that core inflation isn't out of control here.

Gains for the resources heavy index came even as the gold price settled down $8.40, or 0.5%, at US$1,789.70/oz, for a second day of losses, and September WTI oil dropped 3.2%, to settle at US$86.53/bbl.

In terms of the fresh signs on inflation, data for July showed headline CPI inflation is falling, but core inflation is not, noted Stefane Marion over at National Bank of Canada.

Marion noted the average of the Bank of Canada's (BoC's) three core measures continued to rise in July, reaching 5.3% annually, the highest level in over 32 years. This increase, however, was due to yet another important revision to CPI-common. The measure the BoC has tended to favour saw its June print revised from 4.6% to 5.3%. "The cumulative revisions since the beginning of the year are nothing short of dramatic," Marion said, recalling that the January CPI report originally pegged the common CPI at 2.3%. Last month, he noted, we were told that this reading had been revised to 3.2% and this month we are now told it was 3.6%!

But is core inflation, Marion asked, out of control in Canada? He answered his own question with: "We don't think so."

In one of National's most recent special report, Taylor Schleich, Alexandra Ducharme and Matthieu Arseneau highlighted important shortfalls in the methodology used to calculate CPI-common. "Without going into details, suffice to say that the recent upward deviation of inflation has challenged the statistical method the CPI-common is based on and made it a lot more volatile and less correlated with other measures of core inflation. Given this inherent weakness, we recommend focusing on CPI-Trim and CPI-median, which have proved better at capturing underlying inflation trends. Encouragingly, our in-house replication of these measures showed signs of a slowdown recently, with 3-month annualized progressions dropping significantly below 6-month gains."

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