Toronto November 16 2022: Canada’s annual inflation rate held steady at 6.9% in October, matching analyst forecasts, as higher gasoline prices and mortgage interest costs offset a slight easing of food prices, Statistics Canada data showed on Wednesday.
“From a top line perspective, today’s CPI report does little to solve the internal and external debate over December’s BoC meeting.”
While on the one hand, headline inflation remained firm at 6.9% and the BoC’s measure of core inflation ticked up on average in October. Additionally, the sequential pace of price growth increased in past month, despite a stable reading in the U.S. over the same time period.”
On the other hand, alternative measures of core inflation measures, such as the 3 month moving average of CPI ex food and energy cited by Governor Macklem, have fallen.
In total, today’s CPI measure is likely to expose the BoC’s tolerance to the balance of financial stability risks and growth conditions in determining their next steps as the inflation report doesn’t give a conclusive answer to the debate. This puts a lot of emphasis on the December 2nd payrolls report.”
“Inflation might have come in below expectations, but that was relative to some lofty projections. Headline prices increased 0.7% in October against a consensus forecast of 0.8%. That, however, still left the annual rate tracking 6.9%, the same pace it was in September and in line with analyst expectations. Gasoline prices were a major contributor to the monthly increase in the consumer price index. Food prices were also up, likely partially a result of passthrough from the weaker Canadian dollar.
“That said, excluding food and energy, prices were looking tamer with a seasonally-adjusted increase of only 0.2% for that stripped down measure. That left the three-month annualized rate for that metric tracking 3.7% from 4.9%. Still, the Bank of Canada prefers to focus on its trim and median core measures of inflation which both accelerated in October. The trim indicator clocked in at 5.3%, while median was running at 4.8%, both a tick faster than their pace in September. Moreover, according to our calculations, 65% of the categories in the consumer price index were still showing 12-month price growth of more than 5%.
“The mixed data on inflation leaves us still forecasting a 25bp rate hike in December. There’s been little market reaction to the news.”
MICHAEL GREENBERG, SVP AND PORTFOLIO MANAGER, FRANKLIN TEMPLETON INVESTMENT SOLUTIONS
“The headline was in line with expectations – gas prices have put some pressure on. More importantly, looking at the core measures, which obviously the Bank of Canada is more focused on, they inched up … That suggests the Bank of Canada is going to need to maintain some pressure here still to get back to that one to three percent (target) range.”
“It’s tough because you have to consider the lagged effects of previous policy. Some indicators of the economy are suggesting that the economy is slowing and inflation should follow.”
“We think they are probably going to err on the side of making a mistake of doing too much, holding interest rates a little bit higher for a little bit longer and that could be a challenge as the year progresses and as we get into 2023.”
DEREK HOLT, VICE PRESIDENT OF CAPITAL MARKETS ECONOMICS AT SCOTIABANK
“Yeah, I think the number that jumped out at me was the all items excluding energy, so very traditional core, and month over a month it was only up two-tenths. So there wasn’t a whole lot of breadth to the price pressures after you take out seasonality and look at the quarter readings. So at the margin, this might play into the argument that some of the pressures are starting to ease off. The prior month was four-tenths. So we need a lot more data. But at the margin, I think that’s the most important reading.”
“I think Macklem has been guiding he could be open to 25 or 50 (basis point hike in December), but sounding like he’s leaning more toward down-shifting again to 25, and leaving the door open to doing more at the margin thereafter. This would kind of support that I think. I don’t think he’ll come out strongly saying that this is the end in December, but I’d lean more toward a 25 at this point.”
