- Canadian headline inflation lands on consensus, markets yawned
- Most core inflation readings remain too warm to have eased…
- …or to contemplate further easing…
- …as the BoC has strongly signalled a prolonged pause
- CDN CPI, m/m % / y/y %, NSA, October:
- Actual: 0.2 / 2.2
- Scotia: 0.2 / 2.1
- Consensus: 0.2 / 2.1
- Prior: 0.1 / 2.4
- Main core measures, m/m % SAAR, October:
- Trimmed mean CPI: 2.8
- Weighted median CPI: 1.6
- CPI ex-f&e: 3.1 (prior revised up to 3.1% from 2.3%)
Well, this was the predictable yawner. CAD and government bond yields barely flinched when they saw the CPI readings. Headline was on consensus and the core gauges are a mixed grab bag of readings that on balance came in quite warm. In fact, the suite of the core measures suggest core pressures at the margin that question recent easing.
In any event, the BoC doesn’t seem to know which measure(s) of core inflation it’s primarily interested in and so markets also have difficulty determining how the BoC would view the readings. Regardless, the clear message from the BoC is that it is on a prolonged hold barring major shocks.
Details
Total inflation was up 0.2% m/m seasonally unadjusted (NSA) and 0.1% m/m SA. The year-over-year rate eased to 2.1% from 2.4% mainly on shifting year-ago base effects.
The core inflation measures were highly dispersed but three out of the four main ones were all rather warm. At seasonally adjusted and annualized rates, traditional core CPI (ex-food and energy) was up 3.1% and the prior month’s reading was revised sharply higher to 3.1% from 2.3%. At the opposite end was weighted median CPI at 1.6%. In the upper middle of the range was trimmed mean CPI at 2.8%. CPI excluding the eight most volatile items that used to be the BoC’s preferred gauge was up by 3.8% for a second consecutive month. Chart 1 shows some of them.
The usual caution against using y/y measures for trimmed mean and weighted median CPI remains focused on how they are not spot readings; they are rolling weighted m/m readings that are very slow moving in response to recent developments. As such, the fresher m/m measures provide a better picture of inflationary pressures at the margin.
These are not light readings on balance. The suite of them over recent months indicates that core inflation remains too persistently too warm to a) have eased of late, and b) for any further easing to be contemplated.
Inflation was driven by services again as goods price inflation remains tame (charts 2, 3).
Chart 4 shows that breadth of inflationary pressures stabilized.
Charts 5–17 show individual parts of the CPI basket. Shelter was hot and driven by surging rent despite stories of fewer temp residents causing less rent inflation. The rec/reading/education category was driven by several components including new school year costs.
Charts 18–19 break down the CPI basket in unweighted m/m terms and in terms of weighted contributions to the overall rate of inflation.
Charts 20–21 do likewise in y/y terms.
Please also see the accompanying detailed table with more measures and micro charts.
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