CANADA
Headline CPI was softer than expected at 0.0% NSA M/M in November (cons 0.1) and 1.9% Y/Y (cons 2.0%). We think the beat for the Bank’s preferred core inflation was more notable, although CPIxFE surprised lower to muddy interpretation. The mixed messaging has damped the hawkish reaction to the data.
- Average core inflation was 2.65% Y/Y (cons 2.5) after an upward revised 2.65% Y/Y (2.55%). The median measure led the surprise at 2.6% (cons 2.4) but trim also surprised higher with 2.7% (cons 2.6%).
- It leaves the BoC’s preferred core inflation averaging 2.65% Y/Y in Oct-Nov vs the 2.3% forecast for Q4 as a whole in the October MPR.
- The recent run rates are looking more concerning for the BoC, with a 3-mth rate accelerating further from 2.9% to 3.3% for the first time above the 1-3% target range since January. The 6-mth rate held at 2.8% annualized.
- However, CPIxFE cooled by more than expected, from 2.28% to 1.94% Y/Y (we saw five analyst estimates averaging 2.17% Y/Y). CPIX meanwhile eased back from 1.7% to 1.6% Y/Y, where it was in September.
- Recent run rates for more alternative core metrics are much more consistent with the target, at 1.9% and 2.1% respectively on a three-month annualized basis.
- 2Y GoC yields are 2bps higher vs -0.5bp for Tsys since CAD CPI/US retail sales, with the Can-US 2Y differential off latest lows -123bps.
- 2Y GoC yields are 2bps higher vs -0.5bp for Tsys since CAD CPI/US retail sales, with the Can-US 2Y differential off latest lows -123bps. USDCAD has only dipped 5 pips or so on the release, at 1.4277 still close to the rare 1.43 handle.
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