Making sense of the markets this week: December 25, 2022
The contribution of rising mortgage interest costs are now adding more to the overall inflation rate than any point since 2008. In November, this item accounted for 0.45 percentage points to the headline inflation rate of 6.8 percent. pic.twitter.com/iofa4eKZ3i
— Trevor Tombe (@trevortombe) December 21, 2022
Mortgage interest costs were up 14.5% annually, the largest annual jump since February of 1983. The rent index also surged 5.9% in November. Food prices increased by 11.4%.
The headlines said that it was higher than economists expected at 6.7%. That said, the reading is largely due to the previous bout of inflation that occurred from January through May. On a monthly basis Stats Can said inflation increased 0.1% from October, or seasonally adjusted 0.4%.
There’s some potentially encouraging signs of progress in the #cdnecon inflation data for November. Two BoC core measures, for example, fell — together averaging 3% in November (annualized; s.a.). This is volatile, though. pic.twitter.com/n0fEXIi9Or
— Trevor Tombe (@trevortombe) December 21, 2022
In a phone interview, University of Calgary economics professor Trevor Tombe suggested we are continuing with the encouraging recent downward trends. He adds that the month-over-month and three-month trends do show that inflation is declining in a meaningful way. That inflation announcement on Wednesday is not likely to sway the Bank of Canada (BoC) with respect to the rate hike cycle. Not much has changed. Tombe still thinks the BoC will raise the rate again at its next meeting.
Comments I’ve seen from bank economists are guessing the central bank may soon hit the pause button.
The Bank of Canada is scheduled to deliver its next rate decision on January 25.
How sticky is the 2% inflation target?
Bank of Canada Governor Tiff Macklem says he is committed to the 2% inflation target. yahooFinance! reports:
“Macklem said the demographic forces that helped central bankers contain inflation for most of his working life are now making the job harder. Yet he insists an inflation target designed for a different time remains the right approach.”
One could argue that the Bank of Canada currently has little credibility as it missed the boat on inflation and told Canadians not to worry about borrowing and rising rates. BoC may create more positive sentiment if they embrace flexibility over hitting some arbitrary inflation rate.
Wink, wink! Macklem is leaving the door open to some wiggle room. He says: