Articles
18 January 2019

Canada inflation: Upside surprise

The holiday season didn't just bring presents to Canada - it brought upward price pressure to transportation and travel related components too. This was enough pressure to offset the decline in gasoline prices and bring headline inflation back to the Bank of Canada's 2% target - for now

210318-image-canada-torronto.jpg
Shutterstock

The consumer price index in December rose 2.0% and 0.2% on an annual and monthly basis respectively. This was above consensus expectation (1.7% YoY) – though most of the surprise was due to one-off factors related to the holiday season, with volatile components such as travel tours (6.6% YoY) and air transportation (21.7% MoM). Movements in these components helped to offset the decline in gasoline prices. Nonetheless, we’d expect the downward trend of headline inflation to resume in the first part of 2019 as the fall in energy prices continues to feed through.

The Bank of Canada’s (BoC) three main measures of core inflation sustained their 1.9% average. Although persistently weak wage growth is a downside risk to core inflation – it hasn’t yet made a material dent in consumer prices.

Headline inflation is back at the BoC’s 2% target and core inflation has remained stable near this level too, but we don’t see this pushing the central bank to hike rates any earlier than July. The next hiking opportunity would probably be in April when a new monetary policy report is published, but we think a third quarter hike is more likely, as it allows the BoC to wait for confirmation that the Fed is still in hiking mode.


Disclaimer

"THINK Outside" is a collection of specially commissioned content from third-party sources, such as economic think-tanks and academic institutions, that ING deems reliable and from non-research departments within ING. ING Bank N.V. ("ING") uses these sources to expand the range of opinions you can find on the THINK website. Some of these sources are not the property of or managed by ING, and therefore ING cannot always guarantee the correctness, completeness, actuality and quality of such sources, nor the availability at any given time of the data and information provided, and ING cannot accept any liability in this respect, insofar as this is permissible pursuant to the applicable laws and regulations.

This publication does not necessarily reflect the ING house view. This publication has been prepared solely for information purposes without regard to any particular user's investment objectives, financial situation, or means. The information in the publication is not an investment recommendation and it is not investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Reasonable care has been taken to ensure that this publication is not untrue or misleading when published, but ING does not represent that it is accurate or complete. ING does not accept any liability for any direct, indirect or consequential loss arising from any use of this publication. Unless otherwise stated, any views, forecasts, or estimates are solely those of the author(s), as of the date of the publication and are subject to change without notice.

The distribution of this publication may be restricted by law or regulation in different jurisdictions and persons into whose possession this publication comes should inform themselves about, and observe, such restrictions.

Copyright and database rights protection exists in this report and it may not be reproduced, distributed or published by any person for any purpose without the prior express consent of ING. All rights are reserved.

ING Bank N.V. is authorised by the Dutch Central Bank and supervised by the European Central Bank (ECB), the Dutch Central Bank (DNB) and the Dutch Authority for the Financial Markets (AFM). ING Bank N.V. is incorporated in the Netherlands (Trade Register no. 33031431 Amsterdam).