Inflation Data Reveals Positive Trends
The recent inflation data for September has brought a glimmer of hope, breaking a consecutive three-month rise. Both headline and core inflation metrics are on a downward trajectory on an annual and three-month average basis. Coupled with the lukewarm Business Outlook Survey released a day earlier, indications are strong that the current 5% overnight policy rate may not climb any further. Although it’s unlikely that rates will drop until mid-next year, the grueling phase of policy tightening may be behind us.
Gasoline Prices: A Counter-Narrative
Despite the overall decline in the Consumer Price Index (CPI), fuel costs registered a notable year-over-year uptick, climbing 7.5% in September compared to a mere 0.8% in August. This surge can be attributed to baseline effects. Setting gasoline aside, the CPI increased 3.7% in September, as opposed to a 4.1% surge in August. Looking forward, with the ongoing geopolitical tensions in the Middle East, it’s uncertain whether this decline will sustain. However, if current trends continue, October could see headline CPI dip into the low-3% range.
Monthly Highlights: The Numbers Tell a Story
In September, the CPI saw a 0.1% dip following a 0.4% hike in August. The primary force behind this monthly slackening was a decrease in gasoline prices of 1.3%. For the first time since December of last year, goods inflation fell by 0.3% from the previous month. Registering a 3.6% rise from the same month last year compared to 3.7% in August. Similarly, services inflation remained flat on a month-to-month basis and decelerated to 3.9% on an annual basis, down from 4.3% in August.
Perception vs. Reality
The Survey of Consumer Expectations showed that people believe inflation is higher than it actually is. Likely influenced by prominent costs like food and gas. Though still high, food inflation cooled off to 5.9% last month. Moreover, the core CPI, which excludes volatile items like food and energy, fell to a cyclical low of 2.8%.
Durable Goods and More: What’s Slowing Down?
Year-over-year, durable goods prices grew at a reduced rate of 0.4% in September compared to 1.4% in August. The most significant contributor to this deceleration was the cost of new passenger vehicles, which increased 1.7% year-over-year in September, compared to a 3.1% uptick in August. The decline in durable goods was further supported by a drop in furniture (-4.6%) and household appliances (-2.3%) prices. Airfares also plunged, marking a 21.1% decline year-over-year, which can be linked to the uptick in flight availability over the past year.
September Inflation Data: The Final Takeaway
Bloomberg’s calculations indicate that the three-month moving average of core inflation, which has been spotlighted as crucial by policymakers, has eased to an annual rate of 3.67% from 4.29% the previous month. Though still higher than the Bank’s 2% goal, it reflects a slowing global and North American economy. While the Bank of Canada may not implement rate cuts until mid-next year, there’s a growing sense that the peak of the rate hikes may be behind us.
Terry Kilakos
Agency Executive Officer – Nordest