Canadian Trimmed Core Inflation Rebounds to 2%; Global Financial Conditions Tighten Modestly

Overview

This report is Goldman Sachs’s regular update of global economic indicators, covering high-frequency macro indicators including financial conditions, economic activity, inflation surprises, wages, labor supply-demand gaps, fiscal impulses, and near-term capacity utilization. This week’s focus is the rebound in Canadian core inflation, marginal tightening in financial conditions, and divergence in growth and activity momentum across economies.

Core views

Canada’s July inflation data came in above expectations, bringing trimmed core inflation back to 2%. Excluding Russia, the global financial conditions index tightened by 1.7 basis points week over week, mainly due to long-term interest rates. Regarding growth expectations, 2026 growth assessments for Thailand and Japan were raised, while that for Taiwan, China was lowered. On activity, the preliminary July current activity indicator rose by 0.2 percentage points in the United Kingdom and declined by 0.9 percentage points in China, while the global activity indicator overall remains significantly above potential.

Analysis framework

The report uses Goldman Sachs’s proprietary global high-frequency indicator framework, integrating financial markets, real activity, inflation, labor, and fiscal data into cross-country comparable indicators, and tracking macroeconomic developments from weekly, monthly, and next-four-quarter perspectives.

Methodology notes

• Financial ConditionsFinancial Conditions Index (FCI)

  Measures the overall degree of easing or tightening in financial conditions.

  The index is used to assess financial conditions in major economies and provides a reference for GDP growth prospects, monetary policy transmission to the real economy, and the significance of financial shocks.

• Economic ActivityCurrent Activity Indicator (CAI)

  A principal-component growth signal from high-frequency real activity indicators.

  The CAI is constructed from the first principal component of multiple real activity indicators and expressed in GDP-equivalent terms; missing indicators may initially be replaced with forecasts and updated after actual data are released.

• Macroeconomic SurprisesMAP Surprise Index

  The magnitude and significance of economic data surprises relative to market consensus expectations.

  This daily index standardizes the importance, surprise thresholds, and aggregation methodology of indicators across countries, while allowing limited judgmental adjustments by local economists.

• InflationTrimmed Core Inflation

  Trimmed core inflation.

  Excludes the most extreme one-third of price movements among core inflation components to identify a more representative underlying inflation trend.

• Labor MarketJobs-Workers Gaps

  The gap between job demand and labor supply.

  Labor demand is measured as job openings plus employment, while supply is measured by the labor force; forecasts of job openings and unemployment rates incorporate high-frequency hiring and leading unemployment indicators.

• Fiscal PolicyFiscal Impulses

  The effect of fiscal policy on real GDP growth.

  The report measures fiscal policy support for or drag on economic growth through fiscal growth impulses over the next four quarters.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Canadian interest-rate assets

  Inflation and monetary policy expectations

  Strengths

  Trimmed core inflation stands at 2%, with underlying inflation close to target.

  Weaknesses

  The upside surprise in July inflation may increase short-term volatility in policy expectations.

  Comparison

  Compared with headline inflation alone, trimmed core inflation better reflects underlying price trends.

  Risks

  Subsequent inflation data, wages, and rising long-term interest rates could alter the policy path.

• Global interest-rate and risk assets

  Financial conditions affect growth and valuations

  Strengths

  The global activity indicator remains significantly above potential, supporting growth.

  Weaknesses

  Excluding Russia, global financial conditions have tightened marginally, mainly due to long-term interest rates.

  Comparison

  Changes in activity and growth forecasts differ across economies.

  Risks

  Further increases in long-term interest rates, financial shocks, and widening growth divergence.

• Foreign exchange markets

  Divergence in economic activity and interest-rate expectations

  Strengths

  The cross-country indicator framework helps identify relative growth and inflation momentum.

  Weaknesses

  China’s activity indicator declined while that of the United Kingdom rose, indicating divergent macroeconomic momentum.

  Comparison

  2026 growth assessments improved for Thailand and Japan, while weakening for Taiwan, China.

  Risks

  Policy changes, growth forecast revisions, and shifts in risk appetite could intensify exchange-rate volatility.

Key data

• Canadian trimmed core inflation2%Trimmed core inflation returned to this level following the upside surprise in July inflation.
• Weekly change in global financial conditions index excluding RussiaTightened by 1.7 basis pointsPrimarily driven by long-term interest rates.
• Change in preliminary July current activity indicator for the United Kingdom+0.2 percentage pointsReflects improvement in current high-frequency activity signals.
• Change in preliminary July current activity indicator for China-0.9 percentage pointsReflects weakening in current high-frequency activity signals.
• Changes in 2026 growth assessmentsThailand and Japan raised; Taiwan, China loweredThe report does not provide specific forecast figures in the text.

Impact & implications

For markets, Canadian trimmed core inflation returning to 2% indicates that underlying inflation remains near target, but the upside surprise in July suggests the inflation path is not a linear decline. The modest tightening in global financial conditions and global activity running above potential mean that interest rates and financial conditions remain important constraints on growth and risk-asset valuations; diverging regional growth signals call for country-specific allocation and policy monitoring.

Risks

• Persistent upside inflation surprises could delay expected rate cuts or cause interest rates to rise again.
• Further tightening in financial conditions driven by long-term interest rates could restrain future growth.
• Global activity remaining above potential could prolong inflation persistence.
• Weakening activity in China and other regions could widen regional growth divergence.
• The indicators include forecasts and model estimates; subsequent releases of actual data may result in revisions.

What to watch

• Subsequent changes in Canadian core inflation, wages, and policy expectations.
• Weekly changes in the FCI globally and across major economies, especially the contribution from long-term interest rates.
• Subsequent revisions to and persistence of current activity indicators in the United Kingdom and China.
• Further adjustments to 2026 growth forecasts for Thailand, Japan, and Taiwan, China.
• Global inflation surprise indices, wage-tracking indicators, and jobs-workers gaps.
• Fiscal impulses over the next four quarters and their effects on real GDP growth.