Posthaste: Bank of Canada could have a new worry as 'overly restrictive' interest rates sting, economists warn
Disinflation, not inflation, could be the Bank of Canada‘s next worry.
At least that’s what some economists are saying following the latest inflation data from Statistics Canada, who believe the 1.6 per cent hike in the consumer price index in September is more evidence that officials need to put the pedal to the metal where rate cuts are concerned.
Signs of disinflation were all over the report, economist David Rosenberg said, from clothing prices, which fell 4.4 per cent year over year, to telecom prices, down 5.1 per cent. Appliances were down one per cent, vehicle prices fell 1.3 per cent and airfares contracted 4.4 per cent.
“The list goes on, but there is only so much time in the day,” he said in a note following the release.
The Bank of Canada expressed concern about inflation falling below its target in its summary of deliberations in September. Policymakers said they wanted the economy “to grow at a rate above potential output to begin taking up slack in the economy so that inflation does not fall too much.”
Some also said they were concerned about the “downside risks to inflation, particularly if the economy and labour market weakened further.”
The economy is experiencing “excess supply,” economists and the Bank of Canada said, so prices are falling as demand falls short of what is being produced.
“Continued year-over-year declines in air transport and travel tours are also signposts that weakness in household spending could be impacting pricing power,” Andrew Grantham, an economist at CIBC Capital Markets, said in an email.
Bryan Yu, chief economist at credit union Central 1, said the drop in household appliances and furniture princes point to “discounting by retailers amidst weak demand.”
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