Economic Data

Canada’s consumer prices increased 1.6% year over year in September compared with 1.4% in August but came in below economists’ expectations of 1.7% increase. Thus, despite still being low, the inflation figure is inching toward Bank of Canada’s 2% target.

Prices were up in six of the eight major components of the index. The inflation rate was primarily driven by higher gasoline prices, as hurricane impacts led to a supply glut. Excluding gasoline, inflation rate was 1.1%.

Statistics Canada stated that retail sales declined 0.3% on a monthly basis in August against an increase of 0.4% in July. Retail sales volume declined 0.7% in August.

Canada’s GDP growth was flat month over month in July compared with a 0.3% rise in June, and was below economists’ forecast of a 0.1% increase. GDP grew 4.5% on an annualized basis in the second quarter of 2017. Moreover, the International Monetary fund (IMF) sees Canada as the best performing G-7 economy, as it expects the country’s economy to grow 3.6% and 3.7% in 2017 and 2018, respectively.

Rate Hike in the Cards?

The Bank of Canada (BoC) increased interest rates for the first time in seven years in its July 2017 meeting. Then on Sep 6, the key interest rate was hiked for the second time this year from 0.75% to 1%. However, the recent inflation data shows that consumer price inflation is still far from BOC’s 2% target. This dims chances of a rate hike as early as October.

Given that the latest GDP report is the last before the BoC meets on Oct 25 to decide on monetary policy, weakness in GDP growth might create some room for policymakers to go slow on rate hikes.

Canadian housing starts grew a modest 0.4% in August on a monthly basis. Canada’s big five banks —Royal Bank of Canada, Bank of Montreal, TD Canada Trust, Bank of Nova Scotia and Canadian Imperial Bank of Commerce — hiked their prime rates to 3.2%. This is expected to weigh on the Canadian middle class, as they feel the impact of rising rates on housing prices.