Insights and Market Perspectives

Canadian inflation surges, while U.S. housing slumps

Author: Portfolio Specialist Group

August 20, 2018

AGF Weekly Perspectives

“A recap of last week’s top economic news and what’s to come”

Canada inflation surges

  • Canadian inflation surged by 0.5% in July, lifting the annualized pace a full 0.5% to 3.0% and a near-seven year high. Core inflation averaged 2.0% annualized and is right in line with the Bank of Canada’s target.
  • Airline costs rose 16.4% in July, the largest monthly gain for the category in nearly 30 years, and are up 28.2% annualized on the back of higher fuel costs. Energy prices are now 14.2% higher from a year ago.
  • While July’s jump was significant, one month does not make a trend, as Bloomberg odds of a Bank of Canada rate hike in September are estimated at only 30%.

U.S. housing starts disappoint

  • U.S. housing starts edged 0.9% higher in July, widely missing expectations for a double-digit rebound following soft June data. The two prior months were downwardly revised as well, further emphasizing a slowdown in building.
  • Single-family homes and condos both recorded marginal gains in July, though activity was mixed across the country. Positively, building permits recorded the first positive month since March with a 1.5% advance.
  • U.S. housing starts, which are an important input into GDP data, are down 14.0% from January’s peak as a lack of workers and higher material costs are impacting the housing sector.

Canada existing home sales trend higher

  • Canada’s housing market continues to recover from losses suffered in the first four months of 2018, as existing home sales rose 1.9% in July and the MLS Home Price Index moved higher to 2.1% year over year.
  • Montreal and Ottawa continue to lead, with both seeing steady price gains. Toronto sales rose 7.7% in the month and 17.6% annualized, while Vancouver continued its slump with sales activity down 30.0% from a year ago (though sales prices are firmly higher).
  • The Prairies also lagged with both home sales and prices below last year’s levels.

Other economic news

  • U.K. unemployment improved to 4.0%, from 4.2%, to reach the lowest level since the early-1970s in light of Brexit uncertainty. Average weekly earnings slowed to 2.7% annualized, though are still ahead of inflation, which measured 2.5% in July. Core inflation held unchanged at 1.9%, as expected.
  • Industrial production slowed across several key markets in July. The U.S. recorded only a 0.1% gain as utilities output declined for the third-straight month despite hot summer weather. China activity decelerated to a 6.0% annualized pace and the eurozone disappointed with a 0.7% drop.

What’s to come

Jackson Hole Symposium

  • Fed Chairman Jerome Powell will speak on Friday at the Jackson Hole Symposium, one of the largest central banking conferences in the world, in an otherwise light week for economic data. Bank of Canada head Stephen Poloz is also scheduled to speak at the conference.

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Written by

Portfolio Specialist Group

AGF Investments Inc.

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