Bank of Canada gets luxury of time on rates as inflation eases

Bloomberg

Canadian inflation eased for the first time in four months in October as gasoline prices fell and the economy showed few signs of price pressure, bolstering the view the central bank can afford to wait before it tightens policy further.
Annual inflation decelerated to 1.4 percent, from 1.6 percent in September, Statistics Canada reported in Ottawa. That matched the median forecast in a Bloomberg survey. The average of the Bank of Canada’s three key core inflation measures was unchanged at 1.6 percent, remaining at the highest since January.
Persistently weak inflation has been one of the main arguments against further interest-rate increases by the Bank of Canada, after it hiked to 1 percent this year.
Senior Deputy Governor Carolyn Wilkins said in New York policy
makers can be cautious about furt-her tightening even after the economy posted strong growth earlier this year.
“For the Bank of Canada, the reality of still-stable inflation provides them with the luxury of time before having to move again on interest rates,” Doug Porter, chief economist in Toronto at Bank of Montreal, wrote in a research note.
Still, officials at the central bank have also warned against reading too much into the sluggish readings, arguing many of the factors keeping prices down are temporary.
The central bank expects inflation will return to its 2 percent target by the second half of 2018. Gasoline prices fell 3.2 percent on the month in October, after surging in September on the back of supply disruptions caused by Hurricane Harvey.
For the three so-called core measures, the ‘common’ core rate was 1.6 percent, the ‘median’ core rate was 1.7 percent and the ‘trim’ measure was 1.5 percent. On the month, consumer prices were up 0.1 percent, in line with economist forecasts.
Annual goods inflation slowed to 0.4 percent, while service cost price increases quickened to 2.2 percent from 2.1 percent.