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Financial Post - Canada’s inflation rate bounces up to 4-month high
Monday, 24 November 2014
Canada’s annual rate of inflation may have touched a four-month high in October, but don’t expect policymakers to hit the panic button.
Things could change again in the coming months. After all, overall price increases slowed in the previous month and could just as easily weaken again.
The consumer price index rose by an annual rate of 2.4% in October, matching the June level, but up from the 2% year-over-year reading in September, Statistics Canada said Friday. The gains were led by higher shelter and food costs.
The core inflation reading — stripping out key volatile items, such as some energy and food products — advanced by 2.3% last month from 2.1% in September. The October increase was the biggest year-over-year rise since February 2012, when core prices also reached 2.3%.
The Bank of Canada uses the core index to gauge underlying inflation trends and track longer-term price fluctuations.
“It was quite a bit stronger than what we we’re expecting — than probably anybody was expecting,” said Robert Kavcic, senior economist at BMO Capital Markets.
“If anything, it suggest that there’s a little bit more upward momentum in inflation in Canada than the Bank of Canada had been expecting, as well.”
Last month’s pace of inflation pushed above the Bank of Canada’s 2% policy target, but was still within its 1%-to-3% comfort zone and unlikely to budge the central bank’s benchmark lending level of 1% — which has coasted at a near-record low of 1% for more than four years.
The central bank, in its October Monetary Policy Report, predicted core inflation would average 2.1% in the fourth quarter of 2014.
“We’re going to be at least a few ticks higher than that now,” Mr. Kavcic said. “I don’t think they’re going to be overly concerned about it yet . . . and [there will be] no big impact on policy yet.”
The Bank of Canada will issue its next interest rate decision on Dec. 3., and could make some mention of the stronger-than-expected price gains in the accompanying statement.
“I don’t think it’s enough to see any change of tone,” said Ken Wills, senior corporate dealer at CanadianForex.
Most analysts do not expect Canada’s key rate to move until around mid-2015.
“I image they’ll be holding steady and waiting,” he added. “I still firmly believe that their plan is to wait until the U.S. starts changing rates, and then they’ll follow.”
In its Friday report, Statistics Canada said Shelter costs increased 2.8% in October, due mainly to a jump in natural gas prices.
“Consumers also paid more for electricity. Homeowners’ and mortgage insurance, and rent in October compared with the same month in 2013,” the federal agency said. Property taxes rose by an annual pace of 2.2% last month, while mortgage interest payments eased by 0.2%.
Food costs rose 2.8% from October last year, led by higher meat prices, while restaurant prices were up 2.2%. Meanwhile, gasoline prices fell 4% last month, a slower rate than the 5.1% drop recorded a year earlier.
“Given the excess capacity in the economy, the uncertain outlook and that inflation expectations are well-anchored, we think there is little risk of inflation remaining above target for long,” said David Madani at Capital Economics.
“The Canadian dollar’s decline over the past year is still putting upward pressure on prices, but that pressure will fade next year,” he said, adding that “we don’t think the Bank of Canada will feel the need to change its neutral stance on rates.”
From: Financial Post
