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HomeEconomyBank of Canada's focus on more timely inflation data reduces overshoot risk

Bank of Canada's focus on more timely inflation data reduces overshoot risk

Fergal Smith

TORONTO (Reuters) – As the Bank of Canada considers raising interest rates at a slower pace, it is eyeing more timely measures of inflation than is usually observed, which could Help it avoid tightening more than needed to curb price pressure.

Inflation is often reported on an annual basis 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 consumer prices are compared to levels three months ago – the so-called three-monthly inflation gauge – the key measure of core inflation tracked by the central bank looks more intriguing than when presented year-on-year Encouragingly, the central bank included a chart 26 display in its October economic update.

The graph shows that the 3-month median CPI and CPI adjustment measures cooled to around 4% in September, compared to around 5% in September. The rate has been maintained for 12 months in recent months.

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

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

“It’s not enough to bet on farms, but it is encouraging that these ‘super core’ inflation measures are approaching the top of the Bank of Canada’s 1% to 3% inflation target range” Desjardins Macro Strategies Director Royce Mendes said.

“Central banks are 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 could raise interest rates too aggressively, creating a harmful combination of higher borrowing costs and inflation that will hurt consumers Too much for small businesses

The central bank raised its policy rate by 350 basis points in just 7 months, including multiple excess rate hikes, or The rate hike exceeded a quarter of a percentage point to a 14 year high of 3.75%.

Money markets expect the ratio to peak at around 4.14% in the coming months, which is higher than expected after Friday’s blowout domestic jobs report.

“Looking at monthly or three-month changes will give you a better idea,” said Josh Nye, senior economist at RBC.

12 months The rate of interest was included as early as the economists explained.

Inflation is likely to be more persistent after it spreads from commodity prices to slower-moving items like wages and services. Still, the Bank of Canada has Opens the door to slowing down the pace of tightening to a more normal 25 basis point.

“This is A chart that people often use to motivate a more dovish approach,” said Andrew Kelvin, chief Canada strategist at TD Securities.

(Inflation) will continue to decelerate.”



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