EconoFACTS

November 16, 2022 | 09:11

Canadian CPI: High Altitude Holding Pattern

Economist

Chief Economist and Managing Director
Economics

Douglas Porter has over 30 years of experience analyzing global economies and financial markets. As Chief Econom... (Read more)

Douglas Porter , CFA

Chief Economist and Managing Director
Economics

Douglas Porter has over 30 years of experience analyzing global economies and financial markets. As Chief Econom... (Read more)

Canadian consumer prices rose 0.7% in October, holding the annual inflation rate steady at 6.9%. While the result was right in line with the consensus call, any CPI that is no worse than expected should be viewed as a big win these days, and it was notably lower than we had anticipated. In seasonally adjusted terms, the monthly increase was still a meaty 0.6%, but that was mostly driven by a 9.2% pop in gasoline prices in the month. Excluding food and energy, prices rose a modest 0.2% m/m, even a bit milder than the U.S. reading for October (+0.3%), and trimming the annual pace of this core measure a tick to 5.3%. Just to complicate matters, the BoC's two main core metrics instead both edged up a tick on a yearly basis, with trim now also at 5.3% and the median at 4.8%. (And completely destroying its reputation, the common measure was revised—yet again—by two ticks last month to 6.2% and reportedly held there in October...until next month's revision.)

We'll note that the yearly 6.9% rate leaves Canadian inflation at the second lowest in the G7, above only Japan, while no fewer than three members now sport double-digit tallies (Italy, Britain and Germany).

Food price increases moderated somewhat in October, rising by a seasonally adjusted 0.4% m/m after a pair of massive 1.2% jumps the two prior months. For grocery prices specifically, the yearly increase finally backed off four ticks, albeit to a still-lofty 11.0% y/y. Property tax increases are recorded in October, and this was the second largest contributor to the overall CPI increase in the month, as they were up 3.6% this year versus just 1.5% in 2021. Mortgage interest costs just keep rolling, rising at their fastest annual pace since 1991 at 11.4% y/y. On the flip side, StatCan noted large monthly declines in both airfares and hotel rates—however, both drops largely matched the seasonal pullbacks of a year ago, with the yearly rates almost holding steady at still-strong 18.5% and 26.4% clips (respectively).

Bottom Line: We'll call this one a tie, as it matched consensus and held the annual inflation rate steady at just below 7%. Given the big run-up in gasoline prices, that's not a terrible outcome. The modest ebbing in food inflation may also be a step in the right direction, although lettuce count the ways that risks remain on that front. For the Bank of Canada, the 6.9% reading is a tad below their expectation for Q4 headline inflation (their latest call was 7.1%), and keeps the debate over the next rate decision very much alive—between 25 and 50 bp hikes. (Our official call is +50 bps; it's under review.) Given that most measures of core inflation remain locked in a range around 5%, we continue to believe that overnight rates will ultimately need to go above 4% to eventually crack underlying inflation.

Canada — CPI

(month/month % change)

Source: BMO Economics, Haver Analytics