Rosenberg: The dirty little secret about inflation that rarely gets attention

financialpost.com:

The Bank of Canada is looking for clear evidence of “further and sustained downward momentum in core inflation” before it considers cutting interest rates. That was the message governor Tiff Macklem addressed directly to markets in a press availability after his annual year-end speech on Dec. 15.

To get there, the governor is also looking for further wage growth moderation and an easing in shorter-term inflation expectations. That’s a lot less dovish than United States Federal Reserve chair Jerome Powell’s press conference earlier in the week, though there was a clear effort to make the Bank of Canada’s position feel more neutral than in prior meetings.

Macklem referred several times to a “balanced” outlook with “risks on both sides.” But when pushed explicitly by reporters on the fact that mortgage costs (which directly reflect the central bank’s base rate setting) are the main factor keeping inflation up, the governor emphasized that core inflation (including shelter) is the target of the Bank of Canada. That’s a comment designed to send a hawkish message as it implies convergence to core only after base effects wash out in the third quarter of 2024 (in line with the central bank’s forecast).

Macklem’s somewhat hawkish tone was consistent with European Central Bank and Bank of England communications on Dec. 14. There is a clear effort from central banks to lean against the massive easing in financial conditions unleashed by the Fed last week. Even the Fed itself has mildly rebuked markets, with Federal Reserve Bank of Cleveland president Loretta Mester saying on Dec. 18 that markets are a “bit ahead” of the central bank. That’s natural after such a strong market move, even a well-justified one.

Central bankers hate all