October 19, 2022 | 09:09
Cdn CPI — Not Running Up That Hill, But Still On It
Canadian consumer prices were up 0.1% in September (but +0.4% seasonally adjusted), just mild enough to clip the headline inflation rate for the third month in a row. After peaking at 8.1% in June, overall inflation eased another tick to 6.9% last month. The result landed on the high side of consensus, although it still leaves Canada well below the latest loftier readings in the U.S. (8.2%), the Euro Area (9.9%) and Britain (10.1%). Still, inflation remains more than double last year's average pace.
Meantime, the main core measures were all precisely in line with what we saw in August, with median prices again up 4.7%, trimmed up 5.2%, and the dis-credited common measure up 6.0% (the prior month was revised up 3 ticks to that level). The average of the three is thus again 5.3%. The simpler CPI ex food and energy nudged up a tick to 5.4%, which again is well below the latest U.S. trend of 6.6%, but still way too high for any kind of comfort.
Some details: Food prices have been a flashpoint in Canada and many other major economies, and there was little let-up again last month, with adjusted prices jumping 1.2% m/m. Grocery prices rose 11.4%, the fastest run since 1981. Besides food, strong moves in the month included a big rise in mortgage interest costs, homeowner repairs, and autos (latter is up 8.3% y/y). Keep in mind that the solid adjusted rise of 0.4% on overall prices in the month was in spite of a 7.4% drop in gasoline, and pump prices are headed for about an 8% rebound in the current month—pointing to a possible small back-up in headline inflation next month.
One special factor is that tuition fee increases get captured every September: they were up 2.3% this year versus 1.9% in 2021. Not a big deal, but another small turn of the inflation screw.
Bottom Line: Bluntly, inflation did not ease as much as anticipated last month, even as gasoline costs took a big step back. Underlying inflation remains extremely persistent and sticky at above 5%. Combined with the BOC's recent tough rhetoric, the recent weakness in the Canadian dollar, and the strong likelihood that the Fed hikes by 75 bps at the next FOMC, we are now expecting a like-sized 75 bp hike next week from the Bank. This would take the overnight rate to 4.0%, and we suspect that will not be the end of it—pencilling in a 25 bp move in December.