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Canada: Inflation Moves Higher in September (Again)

Consumer price inflation accelerated to 4.4% year-on-year in September, up from 4.1% in August and slightly ahead of consensus expectations for 4.3%. Gasoline prices were up 32.8% relative to a year ago, but the pickup in inflation was due to other factors. Excluding gasoline, prices were up 3.5%, accelerating from 3.2% in August.

Prices were up for all major categories in September, with clothing and footwear flipping from a negative (-0.5%) to positive (+1.4%) in the month. Food prices saw a notable acceleration in September, up 3.9%, from 2.7% in August. Shelter price inflation remained at a 13 year high of 4.8% year-on-year.

Seasonally adjusted, month-on-month price were up 0.4% in the month, continuing a string of strong monthly growth. Food led the gains, up 0.9%, transportation prices rose 0.8% pulled up by rising new vehicle prices.

Two of three of the Bank of Canada’s core inflation metrics moved higher in the month. The CPI-trim rose to 3.4% (from 3.3%) and CPI-Median to 2.8% (from 2.7%), and the CPI-common measure was unchanged at 1.8%. Taken together, the three measures averaged 2.7%, the highest level since December 2008.

Key Implications

If its not one thing, its another. Energy prices remain a major contributor to inflation, but consumers are also feeling the pinch at the grocery store, car dealership and at home.

As the source of price pressures broadens, it also appears more persistent. Inflation is likely to maintain a four handle for the remainder of this year, long enough to attract consumers attention. Indeed, consumers have raised their expectation for the rate of price growth over the near-term according to Bank of Canada surveys.

Expectations for the Bank of Canada to react to the recovering economy and hot inflation with rate hikes have also increased in recent days. We will be watching their communication next week with rapt attention, especially with respect to the persistence of price pressures. Lift off may not come as early as markets are currently pricing, but the risks are certainly moving to sooner rather than later.

TD Bank Financial Group
The information contained in this report has been prepared for the information of our customers by TD Bank Financial Group. The information has been drawn from sources believed to be reliable, but the accuracy or completeness of the information is not guaranteed, nor in providing it does TD Bank Financial Group assume any responsibility or liability.

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