Economic data released by Statistics Canada this morning virtually guarantee that the Bank of Canada will hold interest rates steady when its Governing Council meets next week.
Headline CPI ticked up to 1.6 percent year-on-year in September from 1.4 percent in August. That's well below the Bank's 2 percent target, and in any case the increase was mainly attributable to a jump in transportation costs, which was in turn attributable to the impact of Hurricane Harvey. Excluding gasoline, September CPI was up only 1.1 percent. The Gulf of Mexico oil patch is back in full operation, so that jump will prove transitory, though it may be noted that retail fuel prices in Ontario are still well above their pre-Harvey levels. The Bank of Canada's three slightly arcane "preferred measures" for CPI were little changed from August, all standing between 1.5 and 1.8 percent year-on-year.
Separately, StatsCan reported that retail sales fell 0.3 percent in August. If higher spending on gasoline is excluded (again the result of price increases rather than volume changes), the fall in sales was a more noteworthy 1.3 percent. Since Harvey struck right at the end of the month, its impact at the pumps likely crimped other categories of retail spending into September. The Bank of Canada may also take note of a monthly decline in sales of home-related items (e.g. hardware and furnishings), which may be evidence that the impact of the slowdown in the housing market is spreading outside the housing sector per se.
Add in the major developments going on in the background -- the aforesaid housing slowdown, with more mortgage regulation coming in 2018; and the signs that the NAFTA renegotiations are not going well -- and the case for the Bank to hold off on further tightening this month is iron-clad. In fact, expectations that there will be one further rate move before the end of this year may now have to be rethought.
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