Inflation: What economists expect from October’s price data

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And what a higher number might mean for the Bank of Canada

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The path of inflation may have hit a detour in October with economists predicting the pace of price growth will remain unchanged or even bump higher in data out Wednesday, despite aggressive rate hikes working their way through the economy.

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Leading up to Statistics Canada’s inflation data, many Canadian economists have been making calls that the consumer price index will edge back up over the seven per cent mark from its latest read of 6.9 per cent in September.

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“Canada updates (CPI) for October on Wednesday and it could be another doozie,” Derek Holt, vice-president and head of capital markets economics at the Bank of Nova Scotia, wrote in a Nov. 10 note to clients.

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Holt expects headline inflation to rise 1.2 per cent month-over-month on a non-seasonally adjusted basis, and one per cent in seasonally adjusted terms, driven primarily by a nine per cent rise in gasoline prices in October and food prices.

“If so, then the (year-over-year) rate would pop back up by a half point to 7.4 per cent (year-over-year),” Holt further wrote. “Traditional core CPI (ex-food and energy) is also forecast to rise by about 0.7 per cent (month-over-month, seasonally adjusted) and lift the year-over-year rate above six per cent.”

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The Bank of Canada has hiked its policy rate by three and a half percentage points since March, from near zero to 3.75 per cent by late October. Since then, the inflation rate that hit a peak of 8.1 per cent in June has cooled, but core inflation remained stubbornly high in September. Excluding food and energy, inflation rose 5.4 per cent from a year earlier, up from 5.3 per cent the month before.

Despite the easing headline number, Canadian Imperial Bank of Commerce chief economist Avery Shenfeld said disinflation calls were premature.

“In Canada, we’re going to see a detour from the path towards slower inflation, as a bump in gasoline prices pushes the headline rate higher this month, and possibly for one more month ahead,” Shenfeld said in a Nov. 10 note to clients. “To some extent, markets are a bit premature in hoping for a broader disinflation just yet, because we’ll need to get into more of the slowing impacts of interest rate hikes before that really shows up, which again will be a 2023 story.”

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Douglas Porter, chief economist of BMO Capital Markets, also expects headline inflation to jump north of seven per cent, narrowing the gap between the Canadian and U.S. CPI rate.

A higher number Wednesday could complicate the Bank of Canada’s last rate decision of the year on Dec. 7.

BMO’s Porter is maintaining his forecast that the Bank will end its hiking cycle at 4.5 per cent, lower than the 4.75 to five per cent he expects from the U.S. Federal Reserve, though “the case for such is becoming a bit less air-tight.”

Scotiabank’s December forecast calls for the policy rate to rise to 4.25 per cent, which is in line with consensus expectations.

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