Canada's headline CPI came in slightly below market expectations in September, with a 0.1 percent monthly decline (not seasonally adjusted) resulting in a year-on-year increase of 3.8 percent, down from 4.0 percent in August. That is still well above the Bank of Canada's 2 percent target, but in light of the Bank's recent rhetoric about the lags with which monetary policy operates, it looks safe to say that the Bank will keep its rate target unchanged at 5.0 percent at its Governing Council meeting on October 25.
The slowdown in the year-on-year headline figure was broad-based, but the most eye-catching number is the deceleration in grocery price rises. This sub-component rose 5.8 percent in September, down from 6.9 percent in August and little more than half the peak of 11 percent posted a year ago. So far, and so surprisingly, neither PM Trudeau nor Finance Minister Freeland has tried to claim credit for this. Their little woodshed chat with the grocery store CEOs last month cannot possibly have affected this latest number, and it still seems possible that the politicians only called that meeting because they knew grocery price inflation was about to slow anyway.
Looking briefly at the major special aggregates, it appears that CPI ex food rose 3.4 percent in the year to September, while CPI ex food and energy rose 3.2 percent. All three of the Bank of Canada's preferred measures of core inflation slowed noticeably in the month: their mean value is now down to 4 percent.
These numbers, though still way above the 2 percent target, suggest that the Bank is on the right track to get there eventually. Given signs that higher mortgage rates are starting to take a severe toll on the housing market, there is no doubt that the Bank will keep rates unchanged next week. However, it can be expected to reaffirm its willingness to raise rates again if the slow downward trend in inflation stalls or reverse.
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