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Inflation Watch: Underlying Pressure In Core CPI And Wages

CANADA
  • BOC's Dec rate decision said focus would be on: evolution of excess demand, inflation expectations, wage growth, corporate pricing power.
  • Since then, excess demand has come down; GDP has stalled over the past 3 months, but StatCan's advance estimate says economy grew 0.1% in Nov.
  • Inflation expectations remain elevated; the Q4 business survey revealed over half of firms expect inflation to remain above +3% for the next two years while consumer expectations were little changed from the last report.
  • Wage growth remains high despite unemployment reaching +5.8%. Average hourly wages +5.4% in Dec and the BoC survey shows consumers expect +2.7% gains over the next year.
  • While the frequency of price changes by corporations is little changed from last quarter, the share of firms expecting to increase prices by a greater than normal amount decreased from +43% to +37%.
  • Global oil prices remain relatively weak as supply outstrips demand despite OPEC+ cuts.
  • Headline inflation quickened to +3.4% YOY in last weeks report, the first increase in 4M. Closely monitored core measures also ticked up, with median CPI remaining at +3.6% after an upward revision of last months figure while CPI trim rose to +3.7% from +3.5%.
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