"Transitory but not short-lived"

 Last week, Bank of Canada Governor Tiff Macklem told a reporter that the Bank sees the current uptick in inflation as "transitory, but not short-lived". He added that "I think transitory to economists means, sort of not permanent".  I can't say I remember spending much time in economics classes debating the meaning of that word, but I am reasonably sure that Macklem's current definition is not what he had in mind when he first used the term. I'm even more certain that it's not the message most Canadians thought they were hearing either. 

Today's report from Statistics Canada on consumer prices for October underscores why Macklem (like Fed Chair Powell) is hastily revising the lexicon. Headline CPI rose 4.7 percent in the year to October, up from the 4.4 percent rise recorded in September. The increase was in line with expectations, but serves to bring CPI to its highest annual increase since 2003. On a seasonally adjusted basis, CPI rose 0.5 percent month-over-month, which means that what we might call the running rate of inflation is not slowing. 

The transportation component of the index remains the largest contributor to the overall increase, rising 10.1 percent year-on-year, propelled by a 25 percent rise in energy prices. However, inflation is broad-based, with all eight major sub-components of the index higher than last year. Excluding energy, the increase in CPI was 3.3 percent, the same pace as in September; excluding both food and energy (the normal definition of core CPI), the annual increase was 3.2 percent.

If there is any small consolation for the Bank of Canada in this report, it lies in the three "special aggregates" the Bank uses to monitor underlying inflation trends. These indices have been grinding slowly higher all year, but in October all three recorded exactly the same year-on-year rise as in September. Even so, the mean rise in these measures, at 2.7 percent, is well above the Bank's 2 percent target.

Looking ahead, there is anecdotal evidence that the rise in gasoline prices at the pumps has stalled. However, supply chain pressures persist, and may be dramatically worsened by the impact of the disastrous flooding in British Columbia this week. Governor Macklem has hinted that the Bank is edging closer to raising rates.  The first move is likely to come around the end of the first quarter of 2022.