Looks like a done deal.
Based on Thursday's economic releases, it looks like the markets are right in figuring that the Bank of Canada will be slashing interest rates by 50 basis points next Tuesday.
Let's start with the consumer price index (CPI) our benchmark indicator on inflation.
Thursday morning Statistics Canada told us that the CPI, which represents a basket of goods consumed in Canadian households, rose by 0.3 per cent on a month-over-month basis in September. That's higher than market expectations of a 0.1 per cent increase. The inflation rate (the year-over-year increase in the CPI) was 2.6 per cent, again above expectations of 2.4 per cent. And the so-called CPIX (a measure watched by the Bank of Canada because it excludes eight volatile categories of prices) was 2.3 per cent, not 2.2 per cent as expected.
Prices generally rise quickly when the economy is strong. So the relatively high readings in September at first looked a little out of synch with the big picture.
But chances are the trend to higher prices will not last too long.
Among the CPI components to spiral up in September were clothing and restaurant meals. Both fall into the general category of "discretionary spending", which is the first to get hit when the economy slows. So look for lower demand-and falling prices-in both categories sooner rather than later.
Now to release No. 2.
Canadian manufacturing shipments were up by 0.7 per cent in August. That is in contrast to market expectations of a 0.5-per-cent decline. Again, there seems to be less than meets the eye in the numbers. The August rise was mostly about price increases for Canadian products, particularly in the petroleum and coal industry and in the food industries. Overall, though, the trend in Canadian manufacturing is definitely down. Even with the August rise, shipments are 6 per cent lower than they were at their peak in October of 2000.
And speaking of lower, that's probably where Canadian interest rates are going.
The Bank of Canada's "overnight rate" is now at 3.5 per cent. That's 100 basis points higher than the benchmark U.S. Fed Funds rate, which is 2.5 per cent. The market figures that the Bank will slash 50 basis points on this side of the border to try to rev up the Canadian economy. Chances are, that is exactly what will happen.
Trade numbers from both sides of the border come out Friday.
Stay tuned.
Linda Nazareth is ROBTv's resident economist.