Great Expectations...and how inflation numbers didn't meet them

When Good News Falls Short

Inflation numbers for September were released yesterday by Statistics Canada. And while Headline Inflation continued to trend downwards, the 0.1% drop from August was smaller than what was expected. And with Core Inflation ticking upwards ever so slightly, the disappointment in these numbers is only compounded.

And that leads us into next week where the Bank of Canada (BoC) meets on Wednesday, October 26th. At their September meeting, The BoC was explicit in their messaging: rates are going to have to increase further as they battle both inflation and expectations around it. Nothing that has happened since that least meeting will have them soften that stance. And so, come next Wednesday the market is planning for a further 0.5% - 0.75% boost to the overnight rate. 

But here is where The BoC is now walking a fine line of overshooting their policy rate and throwing us into a worse-than-needed recession. Interest rate increases take time to bear out their full effect. To the tune of 12-18 months. We’re 7 months out from the beginning of the rate hike cycle and only 3 or 4 months since the overnight rate really started accelerating upwards. Inflation looks to have peaked and it’s fair to expect that as these rate increases are given more time, they will only exert more downward pressure on inflation. It’s just going to take some time.

If it feels like we’re in the worst of it, it’s probably because that’s not far off. Rates have increased rather dramatically and inflation, though trending down, is still well above where The BoC (and the rest of us) want it to be. Expect the messaging to stay the same unless and until the inflation numbers reflect the rate increases we’ve seen. For most of us, that can’t happen soon enough. And though we’re not quite there yet, we’re getting closer.

If you have any questions about how this affects you going forward, let’s book a call and discuss. And if you know anyone that would find this helpful, please don’t hesitate to pass it on. We’re always happy to help.