Canada: Underlying inflation trends are still running near target - RBC CM

The CPI Index slowed from 2.0% to 1.4% (annual rate) in Canada during December. Nathan Janzen, Senior Economist at RBC Capital Markets, explains that they continue to think there is a little more room for Bank of Canada rates to move up. 

Key Quotes: 

“Most of the dip in the headline rate to 1.4% year-over-year from 2.0% in December came from a pull-back in energy prices and a retracement of a December surge in airfares. The latter has been highly volatile since Statistics Canada implemented a new methodology for tracking airfares last year.”

“Beyond energy price volatility and wild swings in airfares, underlying inflation trends are still running right around the Bank of Canada’s 2% price target. The Bank of Canada’s three preferred ‘core’ inflation measures — the common, trim, and median CPIs — averaged 1.9% in January and have been remarkably stable in the 1.9%-2.0% range since February of last year.”

“The inflation data is still consistent with an economy running at capacity, but has shown no sign of breaking unsustainably higher. We continue to think there is a little more room for official policy interest rates to move up from still-low levels but with earlier interest rate hikes and regulatory measures already successfully slowing household debt growth and inflation trends still tame there is little push for the central bank to rush.”