Daily Archives: October 21, 2011

Consumer prices rose 3.2% in the 12 months to September, according to the CPI report released by Statistics Canada today. This follows a 3.1% increase posted in August.

Here’s a roundup of commentary:

CIBC

“It’s hard to be a central bank when growth is slow and inflation is hot. And the Bank of Canada’s job just got tougher as today’s on-consensus 0.2% rise in September prices (+0.3% SA) took the annual pace of CPI up a tick to 3.2%—marking nearly a year of above-target inflation. Core prices came in much hotter than expected, up 0.5% in the month (+0.3% SA), sending the annual ex-volatile items inflation rate up two ticks to 2.2%.

That’s the highest level since December 2008, and it marks the third straight quarter of accelerating core prices. With external risks still elevated, the Bank of Canada won’t be moved to hike rates by today’s single data point. However, the hot inflation reading certainly diminishes the likelihood of a rate cut in the near term.” (Source)

BMO

“Inflation remains sticky at just over 3%, and it’s not all about fuel and food, as core is creeping higher. That’s a theme in much of the industrialized world, despite hefty output gaps (less so in Canada). While this result doesn’t completely rule out BoC rate cuts, it relegates them to only the most extreme circumstance. Moreover, if core stays close to this pace—let alone rises further—the BoC may return to the tightening wheel sooner than most now expect, especially if financial markets stabilize. It will be increasingly tough to justify ultra‐low 1% overnight interest rates with core CPI holding above 2% and headline inflation running through the target range at above 3%.” (Source)

Scotia Capital

“Canadian headline inflation came in roughly in line with expectations…But the point remains that near-term inflation readings are set on the back burner by a central bank that is pursuing price level targeting in a de facto sense anyway.

The BoC is not doing so explicitly as its current inflation targeting mandate affords plenty of flexibility, but when Governor Carney reiterates that the BoC has allowed achieving its inflation target to vary over time horizons stretching from two to twelve quarters, the implication is that the current inflation targeting mandate gives the BoC plenty of latitude toward looking through near-term inflation readings that it can’t influence anyway. That leaves it primarily focused upon a growth bias and financial stability concerns as it remains on the sidelines throughout the next year.” (Source)

RBC

“The September consumer price report showed the headline index rose 0.2% in the month, which was in line with expectations; however, the core rate ran much hotter than expected rising 0.5% in the month, more than double the expected 0.2% rise…

With the economy growing at a slower than expected pace during the middle part of 2011, the Bank’s estimate of the size of the output gap likely increased, suggesting that there is more downside to the outlook for inflation than there was when it released its July forecast. Our expectation is that the Bank will push forward the estimate of when the output gap will be closed until 2013 from the earlier projection of mid-2012. With the pace of growth expected to remain modest going forward, the Bank is likely to keep policy accommodative in an effort to mitigate the downside risks to the outlook emanating from outside of Canada’s borders. Next week’s Bank of Canada rate decision and Monetary Policy Report will provide an update to the Bank’s forecasts, and we expect these will convey the sentiment that the Bank is committed to maintaining the current 1% rate until the external headwinds subside.”  (Source)

TD

“Despite this morning’s upside surprise, we don’t expect next week’s rate announcement by the Bank of Canada to feature any major change from the July one. We still expect GDP growth to slow to below1.5% in the fourth quarter. Given this growth profile and the risk represented by high global uncertainty and lukewarm growth in other developed countries, look for the Bank of Canada to wait until early 2013 before it switches its interest rate to a more aggressive inflation-fighting mode.” (Source)