Consumer price inflation rose to 1.6% year-on-year in September (from 1.4% in August), a hair under the consensus expectation for 1.7%. Month-on-month seasonally-adjusted prices rose 0.2%.
Gasoline prices were the main factor driving up the headline index. Gas prices have risen substantially over the past two months as a result of disruptions related to Hurricane Harvey and are up 14.1% year-on-year.
Food prices rose modestly month-on-month in September (+0.07%), but accelerated to 1.4% year-on-year, as past declines fell out of the 12-month average.
Core prices were little moved on the month. CPI-median ticked up to 1.5% (y/y) from 1.4% previously, but both CPI-trim and CPI-common were unchanged at 1.8% and 1.5% respectively.
Key Implications
Outside of energy prices, inflation made little progress in September. Moreover, the recent appreciation in the Canadian dollar, which was up 6.7% year-on-year in September, appears to be weighing on goods prices with higher import content. Core goods prices decelerated to -0.3% (y/y) in the month, with clothing and footwear prices leading the way (down 2.3% y/y).
Risks around future Bank of Canada rate hikes are becoming skewed to the downside. Recent B-20 guidelines from OSFI are likely to add to the string of regulatory changes impacting the housing market, and are likely to slow the pace of housing activity and home prices. This will present a headwind to economic growth over the next year, helping to slow growth from its breakneck pace over the past year.
With inflation still showing some signs of softness, there is little need for urgency on the monetary policy front. Governor Poloz has noted that the central bank is in “intense data dependent mode.” With that, we look forward to the Bank of Canada’s updated assessment of economic developments in its upcoming policy announcement and Monetary Policy Report to be released on Wednesday of next week.
