MNI: Data Support 3Q Slowdown, Making Dec BOC Hike Unlikely

By Yali N'Diaye

     OTTAWA (MNI) - Canadian inflation ticked higher in October, but the

acceleration is unlikely to make the country's central bank any more likely to

raise interest rates at its meeting Dec. 5.

     While the rate of annual increases in headline CPI rose to 2.4%, 0.2

percentage points above both September's level and expectations in an MNI

survey, it was still down from 2.8% in August and 3.0% in July.

     The Bank of Canada has recently attributed higher inflation to temporary

factors which should fade in early 2019, pointing in its Oct. 24 interest rate

announcement to higher minimum wages and gasoline prices. October's inflation

was buoyed by airfares, another volatile component.

     Measures of underlying inflation also rose in October, but were close to

the 2% level with which the BOC is comfortable, with CPI-median and trim both up

0.1 percentage point to 2.0% and 2.1%, respectively. CPI-common held steady at

1.9%.

     With persistent weakness in oil prices, the BOC would be hard pressed to

justify another rate hike this year. Tumbling crude could feed into its outlook

for growth and inflation, and potentially affect its guidance, which calls for

the policy interest rate to rise to neutral.

     The BOC's hikes, with the Policy Rate rising 125 basis points since the

middle of 2017, are also feeding inflation. Mortgage interest costs increased

7.0% year-over-year in October, the largest gain since October 2008, although

the monthly increase was steady at 0.6% for the third time in a row.

     On the activity front, retail sales, also published Friday, showed that

despite a pickup in September, supported by stronger volumes, consumers spent at

a slower pace in the third quarter. It was the latest in a series of reports

pointing to a slowing economy. Recent data also showed average hourly wages for

permanent workers growing at the slowest pace since August 2017.

--MNI Ottawa Bureau; +1 613 869-0916; email: yali.ndiaye@marketnews.com

[TOPICS: M$C$$$]