- Canada, UK and New Zealand saw inflation fall in June.
- British Pound and New Zealand Dollar rose sharply against US Dollar.
- Canadian and New Zealand benchmark stock indices showed strong gains.
We continue to see a global trend of inflation moving lower. This week, the June inflation reports in Canada, the UK and New Zealand all showed a decline compared to May. Canada released the inflation report on Tuesday and the UK and New Zealand on Wednesday.
Canadian Inflation
Canada’s Consumer Price Index (CPI) rose 2.7% year-on-year in June, down 2.9% in May and matching a three-year low from April. Monthly, CPI posted a 0.1% decline, down sharply from 0.6% in May. The decline was the first this year and was driven by a sharp drop in gasoline prices.
Core CPI, which excludes food and energy, moved in the opposite direction and rose 1.9% y/y, up a notch from 1.8% in May. Still, this was below the Bank of Canada’s inflation rate of 2%.
UK Inflation
In the UK, a positive inflation report has pushed the British pound higher today. CPI remained at 2% y/y, unchanged from June, which is the Bank of England’s inflation target. Core CPI was unchanged at 3.5% y/y. On a monthly basis for June, CPI dropped from 0.3% to 0.1% and core CPI eased from 0.5%, to 0.2%.
The fly in the ointment was UK services inflation, which was unchanged in June at 5.7% y/y, almost three times as high as the inflation target. Services inflation is closely monitored by the Bank of England and could complicate plans to lower interest rates.
New Zealand Inflation
New Zealand’s inflation rate fell to 3.3% y/y in the second quarter, down sharply from 4% in the first quarter. Quarterly, inflation eased to 0.4%, down from 0.6% in the first quarter.
Conclusion
These three inflation reports indicate that inflation continues to move on the disinflationary path, which supports the case for interest rate cuts. The Bank of Canada has lowered rates in June and it is only a question of timing as to when the Bank of England and the Reserve Bank of New Zealand follow through.
The USD/CAD currency pair showed little movement in response to the inflation release, while GBP/USD and NZD/USD showed strong gains of 0.52% and 0.67% respectively following the inflation reports.
On the stock market, Canadian and New Zealand benchmark stock indices climbed sharply while the UK is slightly lower.
The S&P/TSX (Canada) surged 1.07% on Tuesday, rising 243 points to close at 22,995.
The FTSE 100 (UK) is down 28 points (0.36%) at 8,136 on Wednesday.
The NZX 50 (New Zealand) climbed 107 points (0.88%) and closed at 12,292 on Wednesday.
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