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Economy 46 minutes ago (Nov 7, 2022 11:51AM EST)


© Reuters. FILE PHOTO: Bank of Canada Governor Tiff Macklem attends a news conference in Ottawa, Ontario, Canada, October 26, 2022. REUTERS/Patrick Doyle

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Fergal Smith

TORONTO (Reuters) – The Bank of Canada considers raising interest rates to ease as it focuses on more timely inflation measures than usually observed, which could help It avoids tightening more than needed to curb price pressure.

Inflation tends to be reported annually to smooth out fluctuations in short-term measures. But with price pressures showing signs of peaking, the Bank of Canada’s move to consider the latest data could help fine-tune the end point of policy rate hikes to minimize damage to the economy, analysts said.

Some forecasters expect the Canadian economy to slip into recession next year as global economic activity declines.

When comparing consumer prices to levels at the time three months ago – the so-called three-month inflation gauge – the key measure of core inflation tracked by the central bank looks better than year-on-year Even more encouraging when presented, the central bank showed on Oct. 26 in a chart included in its economic update.

The graph shows that the median CPI and CPI adjustment measures cooled to around 4% in September from around 5% in September This has continued in recent months 12 months.

That’s well above the 2% midpoint of the Bank of Canada’s inflation target range, but the right direction could suggest that rate hikes are starting to ease underlying price pressures.

Overall interest rates, including volatile items like energy, are off their peaks.

“Just betting on farms is not enough Yes, but it is encouraging that these ‘super core’ inflation measures are approaching the Bank of Canada’s 1% to 3% inflation target range,” said Royce Mendes, head of macro strategy at Desjardins.

“The central bank is now also focusing on these measures, which means that there is a lower likelihood of excessive tightening relative to what is needed to control price pressures.”

Persistent inflation

Politicians, unions and even some economists worry that the Bank of Canada may raise interest rates too aggressively, leading to the harmful effects of higher borrowing costs Portfolio

The central bank raised policy rates by 350 basis points in just seven months, including multiple excess rate hikes, or rate increases of more than a quarter of a percentage point, It hit a 14-year high of 3.75%.

Money markets expect interest rates to peak at around 4.50% ahead of the month, ending higher than previously expected after Friday’s blowout domestic jobs report.

“Looking at monthly or three-month changes can give you a better idea of ​​current price momentum and how inflation is responding to changes in interest rates,” Josh RBC Senior Economist Nye said. Economists explained earlier this year.

Inflation is likely to be more persistent after spreading from commodity prices to slower-moving items such as wages and services. Still, the Bank of Canada has opened the door to slowing the pace of tightening to a more normal 25 basis points.

“It’s the kind of chart people see often,” said Andrew Kelvin, chief Canada strategist at TD Securities.

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