🇨🇦❗️Cable FX Macro Weekly Note: Canada September Consumer Prices

**As seen in Risk IN The Week report 10/13/23, subscribe at cablefxm.co.uk/reports

Canada consumer prices rebounded to 4.0% Y/y in August, the metric surprised economists’ expectations of 3.8%. Just two months ago, Canadian headline CPI had been inside the BoC’s target band of 2-3%. August gas prices rose 0.8% Y/ y, this was the first gain since January, while core inflation came in unchanged at 4.1%. The BoC’s 3m average of core inflation measures accelerated to 4.49% from 3.49%. Shelter prices rose 6.0% Y/y, the move was led by rents and mortgage interests. Some good news came from grocery prices which eased to 6.9% Y/y from the prior 8.5%. On the month, goods prices accelerated to 0.6% from 0.2%, this was the fastest pace since April, while services prices came in unchanged at 0.1% M/m. Energy prices increased by 3.7% M/m in August, this was the highest print since June 2022. After the release, analysts at BMO said they had been expecting gasoline prices to push the headline up, however, they were taken by surprise by a heated-up core number. The BoC won’t meet until October 26, and the August and September CPI reports will be key for policymaking. BMO sees the next price data point to be worse than the prior, this will definitely leave the central bank in a difficult position. Despite the price stickiness, our Inflation Monitor shows Canada standing among the lowest overshoots in the G10. Canada's CPI is 1.0pp higher than the BoC’s target band, Australia overshoots by 3.0pp, the U.K. misses the target by 4.7pp, and even the U.S. is 1.5pp above the price mandate. The desk at UBS said that next week’s inflation report will add to a prior upside surprise and wage growth above 5.0%, they added that these data points will be hard to ignore as the BoC is set to meet later in the month. UBS said that whether the central bank hikes or holds is a “close call.” The Canadian dollar is set to outperform peers if financial markets start lifting BoC’s chances of a rate hike this month. Analysts at RBC reminded us that the week will see the BoC’s BOS before the CPI report, they will be looking at firm’s price-setting behavior and inflation expectations for colour on progress in price normalization.