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Canada Inflation Cools to 3-Year Low: CPI Rises 2.5% in July

Canada Inflation Cools

Canada’s annual inflation rate cooled significantly in July, reaching its lowest level in over three years. According to Statistics Canada, the consumer price index (CPI) rose 2.5% year-over-year, matching market expectations and down from 2.7% in June. This marks the mildest inflation rate since early 2021, reflecting a broad deceleration in price increases.

The monthly CPI figure showed a 0.4% rise in July, driven primarily by higher gasoline prices. On a seasonally adjusted basis, the index advanced by 0.3% compared to the previous month. Despite this monthly increase, the overall trend indicates a cooling inflationary pressure across the economy.

Key contributors to the slowdown in inflation include lower prices for travel tours, passenger vehicles, and electricity. These reductions have significantly impacted the overall inflation rate, mitigating the effects of rising costs in other sectors.

The Bank of Canada’s preferred measures of underlying inflation, which exclude volatile items, also showed signs of easing. The average of the trimmed mean and weighted median inflation measures softened to 2.55% year-over-year from 2.7% in June. This is the slowest pace of underlying inflation since April 2021, suggesting that broader inflationary pressures are also moderating.

Overall, the data provides a clearer picture of a cooling inflation environment in Canada, potentially easing some concerns for policymakers. As the economy adjusts to these changes, future monetary policy decisions will likely be influenced by ongoing inflation trends and economic conditions.

Canada Inflation Cools to 3-Year Low: CPI Rises 2.5% in July

Japanese Yen Rebounds

The Japanese yen appreciated past 146.5 per dollar, marking a rebound from over one-week lows as the US dollar weakened following cooler-than-expected US producer inflation data. This latest inflation report reinforced market bets on more aggressive interest rate cuts from the Federal Reserve, fueling optimism that the upcoming US consumer inflation figures will further confirm easing price pressures in the world’s largest economy.

Domestically, the yen’s strength also reflects mixed economic signals in Japan. The latest Reuters Tankan survey revealed a slight weakening in business sentiment among Japanese manufacturers in August, attributed largely to tepid demand from China. This decline in confidence adds to the ongoing economic challenges facing Japan, particularly as its key trading partner, China, struggles with its own economic slowdown.

Investors continue to scrutinize the outlook for the Bank of Japan’s (BOJ) monetary policy amid recent market volatility and the unwinding of yen carry trades. Speculation is growing on whether the BOJ will adjust its ultra-loose monetary policy stance. However, a former BOJ official recently suggested that the central bank may hold off on further rate hikes this year due to financial market instability, adding another layer of uncertainty to the economic outlook.

Adding to the political landscape, reports indicate that Prime Minister Fumio Kishida will not seek reelection as the party leader in September, which could usher in new leadership and potentially shift Japan’s economic policies.

Overall, the yen’s recent appreciation is driven by a combination of weakening US economic data, domestic economic challenges, and the evolving political landscape in Japan, which are all contributing to heightened market volatility.

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