Wednesday, September 27

‘A little bit louder, a little bit worse’ — what economists are saying about inflation

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Canada’s inflation rate accelerated to four per cent in August, up from 3.3 per cent in July.

It’s the second month in a row that the consumer price index has accelerated, pushing inflation well out of the Bank of Canada’s target range of one to three per cent. It also beat economists’ expectations for a 3.8 rise, according to Bloomberg.

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Here’s what some of Canada’s top economists had to say about the latest inflation print:

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Doug Porter, Bank of Montreal chief economist

Things just got a lot more interesting for the Bank of Canada, and most definitely not in a good way. We all knew that the extended back-up in gasoline prices was going to be a headache for headline CPI and inflation expectations, but the inconvenient truth is that core has suddenly heated up as well. We will note that even excluding mortgage interest costs, prices are now up 3.2% y/y, or above the target band. There’s still lots of data to go before the Bank next decides on rates, including another swing at the CPI. Unfortunately, we suspect that with oil firing higher and core inflamed again, that report will be no better than today’s — second verse, same as the first, a little bit louder and likely a little bit worse.”

Royce Mendes, Desjardins managing director and head of macro strategy

“The central bank is unlikely to change course based on one reading. There continue to be signs that the economy is stagnating even though the lagged impacts of monetary policy have yet to make their way through the system. As a result, expect policymakers to remain hesitant about raising rates any further this cycle even if they continue to talk tough.”

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Stephen Brown, Capital Economics Deputy Chief North America Economist

“The Bank will maintain a hiking bias in its forthcoming communications and the risk of another rate hike is higher than we previously judged, we still think signs of broader economic weakness will persuade the Bank to remain on hold at its next meeting in October – providing that the September CPI report, due before that meeting, does not show another unwelcome surprise.”

Nathan Janzen, Royal Bank of Canada assistant chief economist

“The BoC has one mandate, and that is to target a 2 per cent inflation rate. And the August CPI data took a significant step away from that target rather than towards it. We expect the economic backdrop will continue to soften, and don’t look for more interest rate hikes this year. But the central bank won’t hesitate to hike interest rates further if inflation pressures don’t show signs of easing.”

Additional reporting by Bloomberg

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