Colder inflation increases chances of Bank of Canada holding rates

Article content

Inflation in Canada slowed to 3.1 percent year-on-year in October from 3.8 percent the previous month, leading some economists to predict an interest rate cut by the Bank of Canada as soon as the next spring.

The slowdown was mainly due to gas prices, which are down 7.8 per cent since last October, Statistics Canada said Nov. 21. The reading of the consumer price index (CPI) coincided with the estimates of Bloomberg analysts.

Article content

Article content

On a monthly basis, the CPI rose 0.1 per cent in October, following a 0.1 per cent drop in September, Statistics Canada said. Seasonally adjusted, the CPI fell 0.1 percent, which BMO chief economist Douglas Porter said was “the first such drop since the early months of the pandemic in 2020.”

“Importantly, most key core measures are now within or very close to the Bank of Canada’s comfort zone,” Porter said, adding that the report was not all good news, as US inflation services remains “rigid”.

Services inflation accelerated to 4.6 percent year-over-year from 3.9 percent in September as prices for travel, rent and property taxes and other excise charges rose. Rents rose 8.2 percent from last year and council taxes rose 4.9 percent, the largest increase since 1992, TD Economics said.

This latest reading puts headline CPI within striking distance of the Bank of Canada’s target range of one to three per cent.

Stephen Brown of Capital Economics predicts inflation will fall below three percent this month as gasoline prices continue to fall and expects it to reach the Bank’s target of two percent by the third quarter of 2024.

Article content

Article content

Here’s what economists say about the inflation numbers, what they mean for the Bank of Canada and where interest rates are headed from here.

Douglas Porter, BMO Economics

“While no one expected inflation to remain silent well into the night, overall this is good news and a step in the right direction.

“Overall, today’s result makes clear that there is no need for further tightening from the Bank of Canada, especially now that the economy is already struggling to grow and core inflation is calming. However, before the Bank can even begin to seriously consider rate relief, we will need to see more evidence that services inflation is also moderating; “That could take at least another six months.”

Tu Nguyen, RSM Canada

“Looking ahead, price pressures will continue to ease. Consumer spending as a whole has stagnated, even with immigration. In per capita terms, consumer spending has actually decreased. Households hit by higher mortgage payments are forced to cut back on discretionary spending. And this is just the beginning: more mortgage terms will be renewed at higher rates in the coming months.

Article content

“The CPI report is the latest sign of a cooling in the economy that should make the Bank of Canada comfortable keeping the policy rate unchanged at the December announcement. At this point, the Bank can sit back and let the forces of monetary policy work their way through the economy, keeping inflation close to three percent.”

Alexandra Ducharme, National Bank of Canada

“Overall, although the rise in services prices in this morning’s report is not what the Bank would have liked to see, the overall trend in price pressures remains downward while signs of a slowdown persist. economic slowdown”.

Stephen Brown, Economics of Capital

“There was generally good news in the October CPI report, as the headline CPI fell in seasonally adjusted month-on-month terms for the first time since May 2020, and the three-month average annualized change in the CPI cut and the CPI – median falls to three percent, the lowest since early 2021. With gas prices falling further this month and the economy apparently already in recession, we expect headline inflation to fall to two percent by the third quarter of the next year”.

Article content

Simon Harvey, Monex Europe and Canada

“Coupled with data showing growing slack in the labor market and growth data suggesting the economy is in a shallow recession, today’s constructive inflation report has completely undermined the BoC’s hawkish bias. This is another point that confirms our view that the BoC, having led the Fed during the hiking cycle, will once again set the pace in the 2024 easing cycle, with a cut likely as early as April.”

Claire Fan, RBC Economics

Details of today’s inflation report showed further moderation in domestic price pressures in Canada, extending a downward surprise in price growth in September. Not only were the readings themselves lower among many components, but the scope of inflation has also continued to narrow.

“Continued signs of deteriorating consumer spending and labor market conditions support our view that inflation will continue to moderate in the coming quarters. “We continue to expect the BoC to have ended rate hikes and pivot cautiously toward cuts during the second half of 2024.”

Article content

Charles St-Arnaud, Central Alberta

“The continued slowdown in headline and core inflation measures has virtually eliminated the likelihood of another rate hike. However, we believe it may still be too early for the BoC to officially declare victory and signal that it is no longer considering a rate hike, especially given the breadth of inflation and continued strong wage growth. . Looking ahead, the BoC is unlikely to contemplate rate cuts until inflation has been sustainably reduced below three percent. “This is unlikely to happen until spring.”

Leslie Preston, TD Economics

“It is encouraging to see another drop in CPI inflation in October, but the Bank of Canada will likely need to see further progress in core inflation before it can feel confident that inflation is returning to the 2 per cent target. There is no doubt that Canada’s economy has cooled in recent months, but the cooling of inflation that should follow is proving to be slow. “We hope that weaker demand in the economy will eventually dampen price pressures, but given the tight labor market, it will take time.”

• Email: gmvsuhanic@postmedia.com

Bookmark our website and support our journalism: Don’t miss out on the business news you need – add Financialpost.com to your favorites and subscribe to our newsletters here.

Article content