Canada’s consumer price inflation rate fell to 0.7% in October

(November 24, 2013 )

·         Canada’s headline consumer price index fell 0.2% on a not seasonally adjusted basis in October 2013, which was a bigger monthly decline than market forecasts for a 0.1% dip.·         On a year-over-year basis, the inflation rate dropped to 0.7% from 1.1%.·         The Bank of Canada’s core measure increased 0.2% on an unadjusted basis in the month, which was in line with market expectations. The year-over-year rate slipped to 1.2%.·         Canada’s inflation rates continued to gyrate around the bottom end of the Bank’s 1% to 3% target band with both the headline and core measures falling below the third quarter of 2013’s averages of 1.2% and 1.3%, respectively, in October.The combination of excess capacity in the economy and one-off factors has kept Canada’s core inflation rate below the Bank’s 2% target for 16 successive months. This was one of the factors that the Bank mentioned in its October 23, 2013 rate decision to justify the removal of its mild tightening bias. At that time, the Bank noted that the persistently low inflation environment created a risk of inflation remaining below the Bank’s 2% target and that this development had take on “increasing importance.” By our estimate, inflation will only reach the 2% target late in 2015, thereby setting up for the Bank to begin to reduce the amount of policy stimulus in the second quarter of that year.