Notes From the Desk: CAD CPI – A small sigh of relief
Canadian headline CPI for September surprised nearly everyone by coming in below expectations.
By the numbers..
- YoY CPI 3.8% (4% expected)
- The average of the Bank of Canada’s favourite core CPI measures was 3.75% (3.9% expected)
Normally, a CPI reading close to 4% would not be good news for policymakers, but we think the folks at the Bank of Canada (BoC) are breathing a small sigh of relief.
With mortgage interest costs being the main upward contributor to headline and core CPI, there is growing evidence that other prices are stabilizing/declining in response to softening consumer demand.
Today’s number brings Q3 CPI to 3.7%, which exceeds the BoC’s 3.3% forecast. The Bank will need to weigh the evidence of slowing demand (sluggish GDP data coupled with increasing business pessimism revealed in the latest Business Outlook Survey) against the persistence of inflation when they meet next week. We think it is a close call whether they hike or not next week. However, we lean toward them remaining on hold while maintaining a bias to hike if conditions warrant such a move.
If US rates were not shooting higher this morning on the heels of strong September retail sales, domestic yields would have likely fallen rather than muddling along close to unchanged.