Firmer than expected, markets adding another 25bps to the expected hike next week

Canadian inflation is continuing to prove to be more persistent than hoped. Today’s (October 19, 2022), upside surprise1, drove markets to add another 25bps worth of hikes to expectations for next week’s Bank of Canada (Bank) fixed action date and pushed yields on Government of Canada securities higher across the curve (the Canadian dollar has firmed from earlier lows against the US dollar as well).

The unadjusted consumer price index rose 0.1% on a month-over-month basis last month, an overshoot to expectations for a 0.1% decline. Continued softening in energy (gas) prices (-4.4% month-over-month, though they have increased so far through October, suggesting some upward pressure on headline inflation to come) was offset by gains elsewhere, particularly food (+0.8%) and the heavily-weighted shelter (+0.5%) component; the latter seeing upward pressure from rising mortgage costs, somewhat ironically, driven by the central bank trying to tamp down on inflation.


Canadian consumer price index
(contribution to month-over-month percent change)
Canadian consumer price index contribution to month-over-month percent change

Source: Guardian Capital based on data from Statistics Canada and Bloomberg to September 2022

The upside surprise in the monthly figures resulted in a firmer-than-anticipated 12-month inflation rate. The headline consumer price index was up 6.9% versus its level a year ago, which does represent a five-month low and the third consecutive moderation in the inflation gauge since it hit a peak of 8.1% in June; however, it was higher than market expectations, for a 6.7% read. The continued moderation in energy prices (+14% year-over-year, down sharply from +39% in June) was the biggest factor behind the slowing. However, firmness among food (+10.3%, the biggest such increase since summer 1981), shelter (+6.8%, the first acceleration since May) and, particularly, the “catch-all” everything else (+4.6%, my math shows this is the highest since December 2002) shows general resilience and persistence of underlying pricing that will undoubtedly be the focus on policymakers at next week’s meeting.


Canadian consumer price index
(contribution to year-over-year percent change)
Canadian consumer price index contribution to year-over-year percent change

Source: Guardian Capital based on data from Statistics Canada and Bloomberg to September 2022

Echoing this, all three of the Bank’s gauges of core inflation unexpectedly held steady at rates well above the Bank’s 1% to 3% target range in September; instead, seeing an anticipated continued moderation from July’s peak. Not ideal.


Average of the three Bank of Canada measures of core consumer price inflation
(year-over-year percent change)
Average of the three Bank of Canada measures of core consumer price inflation year-over-year percent change

Source: Guardian Capital based on data from Statistics Canada and Bloomberg to September 2022; shaded regions represent periods of US recession; black lines represent Bank of Canada’s inflation target range

So, the elevated readings, combined with expectations for above-target inflation for the foreseeable future (the Bank of Canada’s Business Outlook Survey indicated that 90% of survey respondents anticipate inflation to hold above 2% over the next two years, with 86% of those expecting it to remain above 3%; chart provided below), results in the pressure remaining on the Bank to continue to tighten its policy stance in an effort to rein in excess demand and cap price pressures that can destroy demand. Following the data, market expectations are for the Bank to raise its overnight rate target by another 75bps next week (they were leaning toward 50bps as of yesterday) to take the key policy rate to 4.00%.


Overnight index swap implied Bank of Canada policy rate
Overnight index swap implied Bank of Canada policy rate percent

Source: Guardian Capital based on data from Bloomberg as at October 19, 2022


Bank of Canada Business Outlook Survey respondent inflation expectations over the next two years
(percent of total)
Bank of Canada Business Outlook Survey respondent inflation expectations over the next two years percent of total

Source: Guardian Capital based on data from the Bank of Canada to Q3 2022


Written by: David Onyett-Jeffries
David Onyett-Jeffries is Vice President, Economics & Multi Asset Solutions, at Guardian Capital LP (GCLP) and provides macro-economic guidance to GCLP and its affiliates—Alta Capital Management LLC and GuardCap Asset Management Limited.





















1. Statistics Canada, The Daily, Consumer Price Index, September 2022, October 19, 2022,

2. Bank of Canada, Business Outlook Survey —Third Quarter of 2022, October 17, 2022,

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