Canadian inflation data for October 2019:
- Prior was +1.9% y/y
- +0.3% m/m vs +0.3% expected
- Excluding gasoline +2.3% y/y
- Gasoline prices -6.7% y/y
- Goods +0.2% m/m vs +0.2% prior
- Services +0.4% vs -0.9% prior
Core measures:
- Median 2.2% vs 2.2% exp (prior 2.2%, revised to 2.1%)
- Common 1.9% vs 1.9% exp (prior 1.9%)
- Trim 2.1% vs 2.1% exp (prior 2.1%)
Bang in-line across the board. The Canadian dollar has ticked higher on the data. Earlier USD/CAD touched 1.3315 on the break of 1.3271 early in Asia but has retreated back to 1.3288 on the release, falling about a dozen pips.
Why the decline on in-line data? The balance of probabilities is still for the BOC to hold rates in December and these numbers are all very close to target so that's one fewer reason to cut; and at this point they're going to need a reason.
Quick reactions from economists:
BMO's Doug Porter says "In terms of what means for the Bank of Canada, ultimately Canadian inflation is on target unlike most of the other central banks. In many other countries it's below or well below target. In the wake of the two speeches we've seen by Bank of Canada officials this week, markets started to get a bit more excited about the possibility of a rate cut by the Bank. I don't think this gives that view any ammunition. The bank doesn't have a free pass to cut rates."
RBC's Josh Nye says "The Bank of Canada said in October that inflation of around 2% was one of the reasons that they opted against taking out an insurance rate cut at that time. What they said is that the fact that inflation had been on target allowed them to weigh upside and downside risks to the economic outlook more symmetrically. Looking ahead their policy decisions are going to continue to hinge on that balance of risks. Our expectation is growth over the second half of this year will be slightly below trend, which I think leaves door open to the Bank of Canada easing early next year."
