There was plenty in Wednesday’s inflation data that Bank of Canada Governor Tiff Macklem won’t like.BLAIR GABLE/Reuters
We won’t hear Tiff Macklem comment this week on Wednesday’s release of fresh inflation numbers. But we have a pretty good idea what the Bank of Canada Governor thought of them.
He certainly wasn’t impressed.
To begin with, the numbers were, objectively, unimpressive. The inflation rate eased a thin 0.1 percentage point to 6.9 per cent in September, considerably less progress than many economists had anticipated.
But there wasn’t any realistic number that would have impressed Mr. Macklem enough to alter his course on interest rates. There are more hikes coming, and the Governor’s bar is high to change that message.
This inflation report, if anything, underscores why the bank has that mindset. This inflation fight is still very far from won. It’s not even clear whether the bank is winning it yet.
Mr. Macklem, or one of his deputy governors, would probably have told us that on Wednesday – if they could. The Bank of Canada has taken to speaking publicly, in one form or another, shortly after Statistics Canada’s monthly consumer price index report, to update Canadians on its views and – perhaps more importantly – emphasize how determined it is to bring inflation under control.
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But this CPI report came just seven days before the bank releases its next interest-rate decision and quarterly Monetary Policy Report. The bank, by long-standing practice, observes an eight-day blackout period on any public comments prior to such announcements.
Still, we had a good sense of where Mr. Macklem stood on inflation and rate policy before Wednesday’s CPI report. He gave a speech on the topic in Halifax two weeks ago, and spoke with reporters on a video conference just last Friday.
His bottom line: No matter where the inflation number landed, it would still be nowhere near the bank’s 2-per-cent target. And the bank places getting inflation back to that target above all other considerations.
That includes tipping the Canadian economy into a recession – something Mr. Macklem would still like to avoid, but he won’t let it get in the way of his inflation priority. If the economy contracts, if unemployment rises, well, those will just have to be the casualties of his war on inflation.
“There isn’t a trade-off here,” he told reporters.
“At the end of the day, our primary objective is to restore price stability.”
Even if the inflation in September had come in tamer than expected, another rate hike next week – either 0.5 percentage point or 0.75 – was already baked into the central bank’s plans. (A basis point is 1/100th of a percentage point.)
And, in reality, there was plenty in Wednesday’s inflation data that Mr. Macklem won’t like.
He won’t like that year-over-year inflation ticked down a thin one-10th of a percentage point, after two months of much more substantial declines. He’ll be bothered that, even with a big decline in gasoline prices, CPI still rose 0.4 per cent month-over-month on a seasonally adjusted basis.
He’ll be distressed that the bank’s favoured measures of core inflation – designed to filter out big moves among a few outliers, to home in on more generalized and persistent inflation pressures – didn’t move at all in September. And that CPI excluding food and energy, an old-school standard for core inflation, actually rose on both a month-to-month and an annual basis.
He’ll be nervous about the persistent extremes of inflation for groceries, which clocked in at a 41-year high of 11.4 per cent. The high-frequency nature of grocery purchases feeds into consumers’ inflation fears and could keep inflation expectations elevated; the bank is deeply concerned about those sorts of expectations becoming entrenched.
If Mr. Macklem was free to talk about these numbers, he might well caution that it’s a single month’s worth of data, that no one expected inflation to decline in a straight and orderly line, and that at least the overall CPI inflation rate continued to move in the right direction, if just barely.
Yet he would also note that the figures came in the context of the bank’s quarterly consumer sentiment survey, released Monday, which showed that consumers’ inflation expectations over the 12 to 24 months have continued to rise, despite the declines in the inflation rate throughout the summer. The bank’s quarterly business survey also showed continued elevated expectations over that time frame.
The September CPI report is a reminder that high inflation could prove somewhat stickier than the bank might like as it works its way down. As long as inflation is far above the 2-per-cent target, the bank will remain more worried about the inflation rate stalling at still-too-high levels, and keeping expectations too high with it, than it is about overdoing its rate hikes.
It won’t be dismissive of the latter, naturally; but taming inflation is the far more pressing issue. The risk remains too great that inflation will become a persistent, long-term problem.
Mr. Macklem will likely say all those things, or something close, once the bank presents its rate decision and quarterly outlook next Wednesday. Until then, the Governor has another rate increase to prepare, and a few more days to fine-tune his message. Don’t expect it to have changed much.