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Free AccessMNI 5 THINGS: Canadian Sept Y/Y Inflation Seen Ticking Down
By Yali N'Diaye
OTTAWA (MNI) - Statistics Canada will release the September Consumer Price
Index data on Friday morning. Ahead of the release, we highlight five themes for
particular attention:
--STILL ABOVE TARGET
Analysts in a MNI survey expect CPI inflation to edge up 0.1% in September,
for an annual rate of 2.7% in September, marking the second consecutive 12-month
slowdown in the year/year measure after reaching 2.8% in August and 3.0% in
July. That would still leave the annual rate above the Bank of Canada's 2.0%
mid-range target, but would make its narrative easier as it expects the total
inflation rate to ease back toward 2.0% in early 2019. Should analysts'
expectations materialize, the third quarter average would rise to 2.8%, above
the central bank's 2.5% projection.
--EYEING GASOLINE, AIRFARE
The contribution of air transportation to annual inflation is expected to
further diminish. This scenario would validate the BOC's view counting on the
dissipation of the effects of past gasoline price increases and the more recent
jump in airfare to drive headline inflation down. In August, both gasoline
(-1.6% on the month) and air transportation (-2.2% on the month) were among the
top five downward contributors to monthly inflation, but remained the top two
largest upward contributors to the 12-month gain.
--HIGHER MORTGAGE RATES
As interest rates continue to rise, mortgage interest costs could continue
to add upward pressure to core inflation. With a 5.8% year-over-year gain in
August and a 5.2% increase in July, this component was among the five top upward
contributors to the 12-month CPI increase over the last two months.
--UNDERLYING INFLATION AT TARGET
The BOC has been looking through the impact of gasoline and airfare to
stress that core inflation readings have been remaining around target. While
this has been the case, its three preferred measures of core inflation have been
reflecting some upside pressure. The range ticked up to 2.0%-2.2% in August,
with both the CPI-common and the CPI-trim rates at the highest since February
2012, and all three measures rising despite the lower headline number. Ongoing
pressure on core readings would challenge the central bank's narrative.
--MONITORING TARIFFS IMPACT
There has been no evidence of a significant impact of steel and aluminum
tariffs on CPI inflation so far, and both the BOC and Statistics Canada expect
it to be modest. However, the latest BOC's Business Outlook Survey published
Oct. 15 said that "many businesses reported pressure from tariff increases,
particularly those on steel and aluminum." The survey was conducted from Aug. 23
to Sept. 17. It added that "several" of these firms plan to pass on such
increases to customers. That being said, inflation expectations did edge down in
the survey, with most firms still expecting inflation to be in the upper half of
the target range over the next two years.
--MNI Ottawa Bureau; +1 613 869-0916; email: yali.ndiaye@marketnews.com
[TOPICS: MACDS$,M$C$$$]
To read the full story
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.