Krishen Rangasamy, analyst at National Bank of Canada, points out that February’s inflation was higher-than-expected, with surprises coming mostly from core categories.
Key Quotes:
“Canada’s consumer price index rose 0.6% (not seasonally adjusted) in February, allowing the year-on-year inflation rate to climb to 2.2%, the highest since October 2014. In seasonally adjusted terms, CPI rose 0.2%.”
“Looking at core measures of inflation, on an annual basis, the CPI-trim and CPI-median both stand at 2.1%, while CPIcommon moved up to 1.9%.”
“February’s inflation data was hotter than expected, with surprises coming mostly from core categories. Price pressures are apparent in both goods and services. This generalized uptick in prices is, however, consistent with an economy with no remaining slack after last year’s GDP surge.”
“Assuming seasonal patterns hold in March, headline CPI is on track to grow in Q1 by 2.1% year-on-year, i.e. well above the 1.7% estimated by the Bank of Canada in last January’s Monetary Policy Report. Also, the average of the three annual core measures now stands at 2.03%, the highest since February 2012. And this surge is not just about base effects. Recent momentum of different core inflation measures confirm the build-up in core price pressures.”
“Our in-house replication of CPI-Trim and CPImedian, show both measures running, on a 3-month annualized basis, well above the Bank of Canada’s 2% midpoint target ─ CPI-Trim at 2.7% and CPI-median at 2.4%. But given ongoing uncertainties with regards to trade (NAFTA negotiations) and housing (B20 impacts), the inflation-targeting central bank may choose to look the other way and stick with its loose stance for another few months.”
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