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Instant View: Canada's annual inflation rate rose 0.5% in September

TORONTO (Reuters) - Canada’s annual inflation rate rose 0.5% on a year-over-year basis in September, up from a 0.1% increase in August, largely due to transportation, education and other sectors, Statistics Canada said on Wednesday..

Canadian retail trade in August rose by 0.4% from July, pushed up by higher sales of building material, garden equipment as well as food, the data showed.

STORIES:

Market reaction: CAD/

Link: here

COMMENTARY

DEREK HOLT, VICE PRESIDENT OF CAPITAL MARKETS ECONOMICS AT SCOTIABANK

“The average core (measure of CPI) is still hanging in around 1.7% despite the slight uptick in the trim measure. The broad takeaway is that, if we go back to the start of the pandemic, some had feared deflation risk, well that is certainly not true in Canada. You have had very resilient core inflation throughout the whole pandemic.”

“I think it (retail sales data) shows that some combination of waning demand and supply side problems is leading to a pretty toppish looking retail sector. It’s a disappointing August number but also the flat guidance for September, it’s not a great handoff for Q4, into the holiday season.”

“I think it (the Bank of Canada) will marginally reinforce their view not to get too carried away by the immediate spurt of activity in the initial stages of recovery and that it is going to be a long and bumpy recovery ahead.”

ANDREW KELVIN, CHIEF CANADA STRATEGIST, TD SECURITIES:

“On the face it’s not a bad batch of data. The retail data came in a little below where the market has been expecting it to be... On the CPI front we saw a slight uptick in core inflation metrics which suggests that the amount of slack in the economy isn’t increasing which the Bank of Canada will like.”

“That being said, headline inflation at +0.5% year over year, that is a very low level of inflation. It suggests monetary policy will need to remain accommodating for a long period of time. It also speaks to the fact that the economy is still in its recovery phase, even if we’re seeing a quicker response form the retail sector than other parts of the economy.”

“The fact that things aren’t worsening suggests (the Bank of Canada) doesn’t need to put more stimulus into the economy, at least not imminently. The message for the Bank of Canada should be that what they’re doing is working and they should continue their charted course.”

DOUG PORTER, CHIEF ECONOMIST AT BMO CAPITAL MARKETS

“There was no real surprise with the CPI; it was so close to expectations. What it’s showing is the big downdraft from lower energy prices is starting to work its way out, and we’re seeing headline inflation creeping back up again.”

“Unfortunately retail sales were disappointing...the initial flash for September is also sluggish. That probably overshadows the CPI.”

“I don’t think it means a whole lot (for the Bank of Canada). Looking ahead, they’ll probably be mildly encouraged that inflation isn’t cascading lower. The fact that underlying inflation is relatively stable somewhat reduces aggressive further action by the BoC. But the fact that retail sales have stalled out means they’ll still be on alert.”

Reporting by Fergal Smith, Nichola Saminather and Moira Warburton; Editing by Denny Thomas

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