By Julie Gordon
OTTAWA (Reuters) – Canada’s annual inflation rate slowed slightly but exceeded forecasts in September, while underlying price pressures proved sticky, official data showed on Wednesday, amping up calls for the central bank to go bigger at its rate decision next week.
Canadian inflation edged down to 6.9% in September, a notch ahead of forecasts of 6.8% and down from 7.0% in August. Excluding food and energy, prices rose 5.4% from 5.3% in August.
And all three of the Bank of Canada’s core measures of inflation, its preferred yardsticks for underlying price pressures, were flat in September, with the average of the three matching August’s upwardly revised 5.3%.
“The Bank of Canada wants to see some decisive movement lower and we’re not seeing that,” said Jimmy Jean, chief economist at Desjardins Group.
“So I think it keeps the Bank of Canada on track to deliver another so-called supersized hike.”
The Bank of Canada is widely expected to raise its policy rate at its next decision on Oct. 26. Money markets bets on a 75-basis point move rose after the inflation data, with rates seen peaking between 4.25% and 4.50% early next year.
“We are not seeing much evidence that inflation at the margin is cooling down,” said Derek Holt, vice president of capital market economics at Scotiabank, noting the strength of underlying price pressures.
“I think that the Bank of Canada should hike by 75 (bp) next week,” he added.
Gasoline prices dropped 7.4% in September, while consumers paid 11.4% more for their groceries, the largest gain since August 1981.
There are signs fast-rising interest rates are having the desired effect on Canada’s housing market. Homeowner replacement costs, tied to the price of new homes, slowed to 7.7% in September, the fourth consecutive deceleration.
On the month, Canada’s consumer price index rose 0.1%, slightly ahead of forecasts that it would remain flat.
The Canadian dollar clawed back some of its earlier decline and was trading 0.2% lower at 1.3760 to the greenback, or 72.67 U.S. cents, after the data.
(Reporting by Julie Gordon in Ottawa; Additional reporting by Dale Smith in Ottawa and Fergal Smith in Toronto; Editing by Mark Porter and Angus MacSwan)
