MNI: Canada Sept CPI More Than Forecast 6.9%, Core Prices Hold

Canada's September inflation of 6.9% was faster than economists predicted and core rates held close to record highs, suggesting the need for another big interest-rate hike at next week's decision. 

The consumer price index moderated a tick from August's 7% and marked the third straight decline from June's four-decade high of 8.1%, but was faster than an economist consensus of 6.7%. Prices also topped forecasts on a month-over-basis, gaining 0.1% instead of the expected 0.1% decline.

Core measures preferred by the Bank of Canada, the median and trim indexes, were unchanged at 4.7% and 5.2%, in line with Governor Tiff Macklem's Friday comments that price gains remain stubborn. Those core rates are close to records of 4.9% and 5.5% set in June. The Bank recently abandoned its focus on the "common" core measure. 

The persistence of inflation was underlined by the familiar causes of the elevated price gains. Automobiles cost 8.4% more amid a global chip shortage and food from stores rose 11% in the biggest gain since 1981 as Russia's invasion of Ukraine created shortages. Gasoline prices were 13% higher even with a monthly decline of 7.4%. 

There is also evidence the Bank's 300bps of rate hikes since March are slowing domestic demand. A measure of housing costs slowed to 7.7% from 8.4% in August and 11% in May. The BOC was expected to hike the 3.25% overnight policy rate at least another 50bps on Oct. 26, the most aggressive path among G7 peers this year. The Bank hiked 100bps in July and 75bps in September.

The Bank’s July forecast said inflation will exceed its 2% target until the end of 2024, and it has already exceeded the 2% target since March 2021.

Households are still facing some eye-popping price gains at a time where officials worry that expectations of rapid inflation will become entrenched. Coffee and tea prices for example have climbed more than 15% from a year ago.

Canada may be headed to a mild recession as Macklem tightens according to forecasts from the IMF, RBC and Scotiabank. Today’s data is the last big report before the next rate decision. The BOC on Monday reported consumers and firms have record high expectations for inflation and a majority see a recession as likely in the next year. About four in five executives saw inflation topping 3% over the next two years, keeping it outside the Bank’s 1%-3% target band.