CORRECTED-MNI: Gas Base Effect Pulls Canada CPI Back Up To 2%
(Fixes reference to BOC's target band in first sentence.)
Canadian inflation quickened to the middle of the central bank's target band at 2% in October led by an unflattering "base effect" comparison to year-ago gas prices, the kind of short-term bump officials and economists said could be overlooked as a weak economy creates slack requiring further interest-rate cuts.
Statistics Canada's Consumer Price Index quickened from the previous 1.6% while inflation excluding gasoline remained 2.2% for a third month. Prices at the pump exerted less of a drag on this month's headline inflation, declining 4% this time versus the prior 11% tumble.
Signs of lingering pressure remain as core inflation rates ticked up-- the "trim" measure to 2.6% from 2.4% and "median" prices to 2.5% from 2.3%. Those moves also run against a long decline to what had been the slowest inflation in several years.
The Bank of Canada has reduced borrowing costs four times starting in June including a half-point move in October where Governor Tiff Macklem expressed more confidence inflation will remain near target and justify further cuts. Monetary policy remains tight with the benchmark borrowing rate of 3.75% still well above inflation while rising unemployment and weak Q3 growth suggest little reason to expect a return of broad-based sticker shock.
Investors have been split since October's jumbo cut on whether another out-sized move is coming in December. The Fed has signaled gradual easing, some hotspots remain around wages and shelter costs, and Canada’s dollar could also set fresh multi-year lows with further easing. Before the Dec. 11 decision there is other key data on Q3 GDP and jobs. The government is also due to provide a fiscal update in coming weeks and BOC Deputy Rhys Mendes gives a speech Nov. 26.
Most of the upside pressures are familiar to officials and investors. Residential rents were up 7.3%, mortgage interest rose 15% and restaurant meals by 3.4%. StatsCan's once-a-year calculation of property taxes showed a 6% increase, and while that's the biggest since 1992 it's also no surprise. There was also some good news in a world where central bankers have worried about sticky prices for services-- StatsCan said those prices advanced at the slowest yearly pace since January 2022 at 3.6%.
Headline inflation matched the economist consensus, while the monthly CPI gain of 0.4% was a notch above the median forecast.