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EnglishپارسیEnglishپارسیCanada's inflation data for October shows some uptick:
These figures indicate moderate inflationary pressures in the Canadian economy, which may influence the Bank of Canada's future monetary policy decisions.
The Bank of Canada reduced its key benchmark rate by 50 basis points to 3.75%, and hailed signs the country has returned to an era of low inflation. Economists and analysts now see a possibility of another cut in December. "Today's interest rate decision should contribute to a pickup in demand," Macklem said, adding that the BoC would like to see growth strengthen.
In September, Canadian housing started reaching 223.8K, falling short of the expected 237.5K. Despite missing the forecast, there was a modest increase compared to 213,000 starts recorded in the previous month. This indicates a gradual recovery in the housing market, although still facing challenges amid broader economic uncertainties.
The slight improvement suggests ongoing, albeit slow, demand in the housing sector as developers adjust to changing market conditions. The data points to a steady but tempered pace of growth in the Canadian real estate market.
In September, Canada's Consumer Price Index (CPI) signaled a slowdown in inflation, with a 0.4% decline (MoM) following a 0.2% drop in August. On an annual basis, inflation slowed to 1.6% (YoY), falling short of the 1.8% estimates, indicating cooling price pressures in the Canadian economy.
On the core inflation front, Core CPI remained unchanged in September compared to a 0.1% rise in August (MoM). However, on an annual basis, Core CPI increased by 1.6%, slightly above the 1.5% registered in August. This suggests that while headline inflation is slowing, underlying price pressures in core categories persist.
Additionally, Canada's Wholesale Sales data for August reflected a 0.6% drop (MoM), which, although a contraction, was better than the 1.1% decline that was anticipated, pointing to mixed signals in economic activity.
The Consumer Price Index (CPI) on a monthly basis (MoM) fell by 0.2% in August, compared to a 0.4% increase in July and market expectations of no change (0.0%).
The Core Consumer Price Index (Core CPI) also eased by 0.1% in August, following a 0.3% increase in the previous month. On an annual basis (YoY), the Bank of Canada's Core CPI dropped to 1.5% in August, down from a 1.7% increase in July.
The Bank of Canada reduced its key policy rate by 25 basis points to 4.25%, as expected, citing weaker-than-anticipated growth that could lower inflation further. Governor Macklem emphasized the need for caution, noting concerns about both inflation falling too low and rising too high. While overall economic weakness is driving inflation down, pressures in housing and services remain. Macklem hinted that if inflation continues to align with forecasts, more rate cuts could be expected.
Canada's Raw Material Price Index for July came in at 0.7%, above the forecast of -0.9%. The Industrial Product Price (MoM) remained flat at 0%, exceeding expectations of a 0.3% decline in July.
In the housing market, the New Housing Price Index recorded a 0.2% growth in July, surpassing the expectation of 0.0%.
Canada's annual consumer inflation rate met expectations, falling to a 40-month low of 2.5% in July. The CPI increased by 0.4% on a monthly basis, also aligning with forecasts. Core inflation, which rose by 0.3% after a 0.1% decline in June, dropped to 1.7% year-on-year, down from 1.9% in the previous month.
The decline of inflation suggests that the Bank of Canada might cut interest rates by another 25 basis points at its next meeting.
On Wednesday, the Bank of Canada (BoC) trimmed its key policy rate by 25 basis points for the second month in a row, bringing it down to 4.5%, and indicated that more cuts were likely if inflation continued to cool in line with forecasts.
The bank also lowered its 2024 growth expectation to 1.2%, down from the 1.5% predicted in April.
As expectations for a rate cut grew in the US, the Bank of Canada became the first major central bank to lower rates and ease its strict policies. Despite market anticipation of this move, the Canadian dollar weakened significantly against its rivals
Canada’s wholesale sales were flat in September, showing 0.0% growth after a 1.2% drop in August. The data suggest that business activity remains subdued, as higher borrowing costs and cautious inventory management weigh on trade volumes. While stabilization in September may indicate that the worst of the decline has passed, demand recovery remains fragile amid slowing economic momentum and uncertainty surrounding future policy moves by the Bank of Canada.
Market impact: Neutral for CAD; steady but weak wholesale performance reinforces expectations of a soft landing and supports the case for maintaining an accommodative stance.