Last week, we already saw signs of an imminent pause in the Bank of Canada’s decision to add 50 basis points to its key rate. In other words, it had become permissible to dream of an additional increase – probably 25 points, at most 50 points – on December 7, which would be the last of this bullish cycle. The inflation data just released by Statistics Canada reinforces this scenario.
Thus, the Consumer Price Index (CPI) continued its (slight) deceleration measured from the peak of 8.1% in June to reach 6.9% year-on-year in October. This rate remains unchanged from September despite a 9.2% increase in gasoline prices at the pump last month. They were down 7.4% in September and have fallen since that last reading. In short, beyond the volatility of this component, excluding food and energy, prices rose 5.3% year over year in October, after rising 5.4% the previous month. , says Statistics Canada.
The federal agency adds that the slowdown in the growth of food prices has offset the surge in gasoline prices, but also that of the cost of mortgage interest, the latter cost being directly influenced by a tightening monetary policy that raised the target for the overnight rate from 0.25% to 3.75% this year in six consecutive hikes.
We agree, nothing has been won yet. Gasoline prices were up 17.8% in October compared to October 2021, after rising 13.2% in September. Also on a year-over-year basis, the 10.1% increase in food prices last month was only slightly lower than the 10.3% increase measured in September. For its part, the 11% rise in prices for food purchased from stores “continued to be higher year over year than that of the all-items CPI, for the eleventh consecutive month. “.
Same observation for the erosion of purchasing power with an average hourly wage increasing by 5.6% from one year to another in October. At most, we can rejoice that the gap was less pronounced than in September.
But another factor also comes to exert its full weight in the evolution of inflation: the Mortgage Interest Cost Index. The latter rose 11.4% year over year in October. “This is the steepest increase since the 11.7% increase observed in February 1991,” says Statistics Canada. On the same subject, the Bank of Canada pointed out last week that households who renew their loans face an increase greater than those observed in the monetary tightening cycles of the past 30 years.
For its part, the pace of growth of the homeowners’ replacement cost index, which is associated with the price of new homes, remains high, although it slowed somewhat last month with growth of 6.9% against 7.7% the previous month. “This index has decelerated, year over year, every month since May 2022 (+11.1%). As for them, rent prices were up 4.7% compared to October 2021, compared to the 4.2% observed in September. “This is the ninth consecutive month in which the increase in rental prices is greater than 4%. »
The rather aggressive tightening of the Bank of Canada’s monetary policy, the effects of which are appearing with a certain lag, is therefore hitting a rather neuralgic component. Statistics Canada points out that housing accounts for about 30% of the weighting of the CPI basket. “Prices of rented and owned accommodation, including goods and services associated with home maintenance and insurance, as well as utilities, are all included in the housing index. »
Appeasement at the Fed
The same change of tone at the US Federal Reserve, where recent inflation data is welcomed with a speech of appeasement. At least, another leader of the institution has just mentioned a possible deceleration in the movement to increase the cost of money.
One of the governors of the US central bank on Wednesday expressed support for a slower rate hike at the next meeting in mid-December, citing an increase of half a percentage point, against three-quarters of point at recent meetings. Unemployment and inflation figures released in recent weeks, which showed signs of easing inflationary pressures, “made me more comfortable with the idea of slowing down to a 50 basis point hike” , said Christopher Waller during a speech in Phoenix, according to comments collected by Agence France-Presse. Before him, Fed Vice President Lael Brainard had issued the same signals on Monday, saying she was considering a slowdown in increases “soon”.
South of the border, inflation as measured by the CPI slowed to 7.7% on an annual basis in October from 8.2% the previous month. The Fed’s key rate is now in the 3.75% to 4% range, its highest level since January 2008.
So in Canada, it will be 4 or 4.25% on December 7?