Canadian household net worth likely rose in Q2 on financial asset gains. Attention shifts to US August CPI on Friday, with RBC economists forecasting a 0.4% month-on-month rise.
Canadian household net worth likely rose in the second quarter, boosted by gains in financial assets, according to RBC economists. The report is due next Friday, but market attention will focus on the US August CPI release the same day.
Household wealth was driven higher by the rally in equity markets. The TSX Composite rose 6.4% in Q2 following a 3% gain in the first quarter. The S&P 500 rebounded 17.2%, reversing its prior decline. Non-financial assets were little changed, with the CREA Home Price Index up just 0.2% in the quarter. The household debt service ratio is expected to edge lower, helped by stronger disposable income growth, RBC economists said. Wages and salaries increased, and government transfers rose.
The broader economic backdrop has been gradually improving. Economic activity rebounded through Q2, supported by stronger household spending and business investment, with some of the earlier drag from trade disruptions fading. Labour market conditions have stabilized. The unemployment rate was 6.4% in August, down 0.7 percentage points from a year ago, even as employment fell by 42,000. RBC economists said the pace of growth is unlikely to be sustained.
With limited Canadian data next week, attention shifts to the US CPI report. US inflation has cooled overall. The details have become more problematic, RBC economists said. Headline CPI rose 0.1% in July and was 3.4% above year-ago levels. Core prices increased 0.2% on the month and 2.5% from a year ago. The breadth of inflation pressures has narrowed. Tariff-related cost pressures remain visible in some goods categories. Services inflation, particularly shelter, remains sticky.
RBC economists expect headline CPI to rise 0.4% month-on-month in August, leaving the year-over-year rate at 3.4%. Core prices are expected to increase 0.2% month-on-month and 2.4% year-over-year. While some moderation in underlying inflation has occurred, the persistence of core measures above the Fed's 2% target is concerning and raises the risk that additional rate hikes could be needed, they said. The danger is that recent energy price pressures and tariff effects could prevent further disinflation or drive a re-acceleration in core measures. If that materializes, the Federal Reserve would have limited ability to look through such a trend, leaving additional tightening as the most likely policy response, RBC economists said.
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