MNI: Canada Sept Inflation Slows To 3.8%, Core Rates Also Down

Canada's headline and core inflation slowed in September while remaining above the central bank's target band, keeping policymakers on the delicate path of figuring out if they can hold interest rates next week and allow their past 10 hikes to restore price stability.

Consumer prices rose 3.8% from a year ago and declined 0.1% from August, Statistics Canada said Tuesday from Ottawa. Both are milder than the consensus for annual inflation to remain at 4% and monthly prices to climb 0.2%. Core indexes also slowed with the trim measure fading to 3.7% from 3.9% and median to 3.8% from 4.1%. 

Prices of natural gas and telecom services both declined 13% from a year earlier and furniture prices fell 4.6% in what StatsCan called a broad-based slowdown. Gasoline prices were a notable exception with a 7.5% increase, and while grocery inflation slowed to 5.8% from 6.9% that may do little to convince households the cost of living is returning to normal. Mortgage costs are also up 31% from a year earlier. 

The last CPI report before the Bank of Canada's Oct. 25 decision provides a bit of relief but inflation remains well above its July forecast that CPI would average 3.3% in the third quarter. Most economists see Governor Tiff Macklem holding the overnight rate at 5% for a second meeting, though Macklem reiterated Friday that while rate hikes are working he could tighten again to address the risk inflation is becoming stuck above target. He also said a recent rise in global bond yields is no substitute for any needed policy action. 

Other central banks are tilting towards a high-for-long strategy and the Federal Reserve is debating whether to hike once more this year, and similarly economists see the BOC refraining from any rate cuts until perhaps the middle of next year. Canada’s inflation rate compares with 4.3% in the euro zone, 3.7% in the U.S. and 6.7% in the UK.

Canada sets interest rates to keep inflation in the middle of a 1% to 3% target band. Officials have said CPI may quicken in the near term on higher gasoline prices but a strong economy will keep it from returning to 2% until the middle of 2025. Price gains have already topped 2% since March of 2021.

Other reports show both a slowing economy that could re-balance price pressures and continued bidding up of wages and prices. The last job report showed wages up 5% from a year ago even as record immigration is exceeding job creation. The Bank's latest quarterly survey published Monday showed a majority of firms see inflation running more than 3% for the next two years while households saw inflation at about 5% a year from now and 5% in two years. Both surveys also showed fears that a recession is looming after a period of surprising growth. 

The Bank’s key rate of 5% is already the highest since 2001 when it reached 5.75%. Officials have also said the effect of their past tightening including the shock 100bp hike last July may just be slow in coming. Macklem told reporters Friday public anger about high prices includes feelings of being “ripped off” and the upset reflects how damaging high inflation is.