21 Dec

Canadian Inflation Disappointingly High in November

General

Posted by: Dean Kimoto

The Bank of Canada won’t like this inflation report

November’s CPI inflation rate fell only one tick to 6.8%, despite gasoline prices falling. This follows a two-month reading of 6.9%. Excluding food and energy, prices rose 5.4% yearly last month, up from 5.3% in October. Critical gauges of underlying price pressure were mixed but continued to creep higher. The all-important three-month trend in Core CPI edged to a 4.3% annualized rate from 4.0% the month before.

This is not good news and does nothing to assuage the central bank’s concerns about inflation. Price pressures remain stubbornly high, even as the economy slows and higher borrowing costs start to curb domestic demand.

Slower price growth for gasoline and furniture was partially offset by faster mortgage interest cost and rent growth. Headline inflation fell just one tick to 6.8% following two months at 6.9%, and core inflation remains sticky.

Digging into the still-strong core results revealed some new areas of concern. After years of helping hold back inflation, cellular services rose 2.0% y/yon “fewer promotions,” while rent took a big step up and is now at a 30-year high of 5.9% y/y (from 4.7% last month). Mortgage interest costs are another driving force, rising 14.5%, the most significant increase since February 1983. Just six months ago, they were still below year-ago levels. The transition from goods-led to services-driven inflation continues apace, with services prices up 5.8% y/y, or double the pace a year ago.

Prices for food purchased from stores rose 11.4% yearly, following an 11% gain in October.

Bottom Line

Before today’s report, traders were pricing in a pause at the next policy decision, with a possibility of a 25 basis-point hike. Barring an excellent inflation report for December, another rate hike is likely on January 25, likely a 25 bp hike. Given what’s happened in the first three weeks of this month, there is a good chance that the almost 14% drop in gasoline prices (compared to a 4% decline in December a year ago) could pull this month’s headline inflation down to 6.5%. However, many components of core inflation continue to rise.

While the BoC will slow the rate hikes in 2023, at least two or three more hikes are still possible, with no rate cuts likely next year. Remember, wage inflation is running at 5.6% y/y, and wage negotiations are getting more aggressive.

Please Note: The source of this article is from SherryCooper.com/category/articles/
7 Dec

Bank of Canada increases policy interest rate by 50 basis points, continues quantitative tightening

Latest News

Posted by: Dean Kimoto

The Bank of Canada today increased its target for the overnight rate to 4¼%, with the Bank Rate at 4½% and the deposit rate at 4¼%. The Bank is also continuing its policy of quantitative tightening.

Inflation around the world remains high and broadly based. Global economic growth is slowing, although it is proving more resilient than was expected at the time of the October Monetary Policy Report (MPR). In the United States, the economy is weakening but consumption continues to be solid and the labour market remains overheated. The gradual easing of global supply bottlenecks continues, although further progress could be disrupted by geopolitical events.

In Canada, GDP growth in the third quarter was stronger than expected, and the economy continued to operate in excess demand. Canada’s labour market remains tight, with unemployment near historic lows. While commodity exports have been strong, there is growing evidence that tighter monetary policy is restraining domestic demand: consumption moderated in the third quarter, and housing market activity continues to decline. Overall, the data since the October MPR support the Bank’s outlook that growth will essentially stall through the end of this year and the first half of next year.

CPI inflation remained at 6.9% in October, with many of the goods and services Canadians regularly buy showing large price increases. Measures of core inflation remain around 5%. Three-month rates of change in core inflation have come down, an early indicator that price pressures may be losing momentum. However, inflation is still too high and short-term inflation expectations remain elevated. The longer that consumers and businesses expect inflation to be above the target, the greater the risk that elevated inflation becomes entrenched.

Looking ahead, Governing Council will be considering whether the policy interest rate needs to rise further to bring supply and demand back into balance and return inflation to target. Governing Council continues to assess how tighter monetary policy is working to slow demand, how supply challenges are resolving, and how inflation and inflation expectations are responding. Quantitative tightening is complementing increases in the policy rate. We are resolute in our commitment to achieving the 2% inflation target and restoring price stability for Canadians.

Information note

The next scheduled date for announcing the overnight rate target is January 25, 2023. The Bank will publish its next full outlook for the economy and inflation, including risks to the projection, in the MPR at the same time.

This article is from the Bank of Canada website: https://www.bankofcanada.ca/2022/12/fad-press-release-2022-12-07/