'Core CPI in Canada had better support the BoC’s last 50bps hike': Portfolio manager
Statistics Canada is set to release the latest read on Canadian inflation Wednesday and according to economists tracked by Bloomberg, consumer prices are expected to remained elevated at 6.9 per cent in October – buoyed by higher fuel costs.
Ksenia Bushmeneva, economist at TD Bank, said core inflation will be a key figure to watch.
“All eyes will be on core inflation, which has so far remained stubborn,” Bushmeneva said in a note to clients on Nov. 10.
“Not helping the cause, both the labour market and spending data have showed renewed resilience in the fall months.”
In September, the consumer price index (CPI) was up 6.9 per cent from a year earlier, higher than economists’ average estimate of 6.7 per cent.
HIGHER FUEL PRICES
Some economists think elevated fuel prices played a large role with Canadian inflation in October.
“Driving the increase [in October inflation] was a resurgence in gas and fuel oil prices,” said Nathan Janzen, senior economist at Royal Bank of Canada in a note to clients on Nov. 10.
“These prices, declining for months, had been the main factor pulling overall CPI growth readings lower.”
Similarly, Andrew Grantham, senior economist at CIBC Capital Markets, said heightened fuel costs are the “main reason” for higher inflation and that trend will continue until prices at the pump start to ease.
“Unless gasoline prices start to turn back down again, headline inflation could well accelerate further in November as well,” Grantham said in a note to clients on Nov. 10.
According to Trading Economics, gasoline prices increased to US$1.23 per litre in October, up from US$1.18 per litre in September.
NEXT INTEREST RATE DECISION
Derek Holt, vice president and head of Capital Markets Economics at Scotiabank, said Canada faces more inflationary risks than the U.S. and thinks there could be more interest rate hikes ahead.
“Combine October’s blow out jobs and wages with next week's [this Wednesday] likely hot CPI report and the BoC may be more likely to hike by another 50 [basis points] on Dec. 7 if data carried the day versus Macklem's openness to going either 25 or 50 at the next meeting,” Holt said a note to clients on Nov. 10.
The Bank of Canada’s final interest rate announcement for the year will be on Dec. 7.