- Headline CPI steady at 1.9% in October
- Core measures ticked up slightly on balance
- Rent rose at its fastest rate since 1991 (3.7% y/y)
Headline inflation, which held steady for a third consecutive month in October, is likely to edge higher in the coming months before slipping back below 2% for much of 2020. A near-term rise in energy inflation (weekly gasoline prices now above year-ago levels for the first time in 2019) isn’t expected to persist, while mortgage interest costs should continue to come off the boil next year. Core inflation has been remarkably steady since early-2018, seeing only the most modest of upward trends in 2019. Given strong wage growth in recent months, we’ll be watching to see if core measures rise further in 2020. But with inflation expectations looking well anchored, the scope for stronger underlying inflation looks fairly limited.
The BoC cited on-target inflation as one of the key reasons it opted against an “insurance” rate cut in October. The fact that core measures have hovered around 2% for nearly two years allows the BoC to weigh inflation risks “more symmetrically.” That will leave monetary policy dependent on the growth outlook and trade risks. We think below-trend growth over the second half of this year will leave the door open to a rate cut in early-2020. Any disappointment in US-China trade talks (optimism fading a bit as of this morning) would add to the risk of a cut.