CPI was up 0.2% as higher prices for shelter

Week in review

Canada – In October, the consumer price index rose 0.2% month-over-month, allowing the year-on-year inflation rate to increase two ticks to 1.5%. This was in line with consensus expectations. In seasonally adjusted terms, CPI was up 0.2% as higher prices for shelter, transportation, healthcare, household ops and alcohol/tobacco have more than offset declines in clothing and food. Recreation was flat. The core CPI, which excludes eight of the most volatile items, rose 0.2% (below consensus expectations calling for a 0.3% rise), which allowed the year-on-year core inflation rate to drop one tick to 1.7%. In seasonally-adjusted terms, core CPI was flat. Inflation in October was supported by a strong gain in gasoline prices while food inflation remained weak (prices declined in 6 of the 7 previous months). As a result, food annual inflation is negative for the first time since 1999 tapered by a significant decline in global food prices. Core inflation in Canada, which includes food components as opposed to the U.S, was below consensus expectations in October. For some time, the weakness of the CAD was supporting goods inflation but this effect has definitely faded. As a result, the annual rate stands at 1.7%, the lowest since April 2014. The recent trend is even lower with the 3- month annualized rate standing at 0.3%, its lowest level in more than 5 years.

Note that next month, Statistics Canada will publish three other measures of inflation considered by the Bank of Canada more suitable for operational decisions: CPI-Trim, CPI-Median and CPI-common component. Note that all three measures were below the so-called core inflation rate in Q2, explaining in part the dovish tone of the central bank..

In September, manufacturing shipments grew 0.3%, overshooting the 0.1% rate expected by consensus. Sales were up in 12 of the 21 broad industries, including transportation, where they sprang 1.5%. However, the overall increase was due to higher prices. In real terms, factory sales actually shrank 0.2%. In addition, real inventories were flat in the month. All of this will weigh on GDP growth in September. Still, thanks to the 1.2% surge in volume sales in August, real factory sales managed to grow 2.5% annualized in Q3, more than erasing the prior quarter’s decline. Consequently, despite the softness witnessed in September, the factory data are consistent with a return to GDP growth in Q3, which we continue to estimate at 3.5% annualized.

In October, the Teranet–National Bank National Composite House Price Index™ rose 0.3% month over month thanks to gains in six of the eleven regions covered, led by Hamilton (+1.4%), Toronto (+1.2%) and Quebec City (+1.1%). In Vancouver, prices were down 0.6% for a first decline in 22 months. The drop was concentrated in dwellings other than condos. These include detached homes, the category where sales decreased the most since peaking in February. Prices fell 1.0% in Montreal and 0.2% in Halifax and Ottawa-Gatineau. They were flat in Edmonton. Year over year, the national index rose 11.8%. Prices were up in Vancouver (+22.5%), Victoria (+17.9%), Toronto (+17.4%) and Hamilton (+15.0%) and down in Montreal (-0.6%), Quebec City (-0.8%), Edmonton (-0.9%) and Calgary (-4.9%).

United States – In October, the consumer price index rose 0.4%, lifting the annual inflation rate one tick to 1.6%. The increase was largely due to energy prices, which jumped 3.5% m/m and turned positive on a y/y basis for the first time since February 2013. Food prices were flat for a fourth month in a row. Excluding food and energy, consumer prices were up 0.1% thanks to further gains in owners’ equivalent rent, which boosted ex-energy services CPI 0.2%. Core goods inflation (+0.1%) was restrained by lower prices for used trucks. Year over year, the core inflation rate slipped one tick to 2.1%.

After dropping sharply the prior month, housing starts shot up 25.5% in October to a 9-year high of 1323K in seasonally adjusted annualized terms. Multi-family starts surged 68.8% while single-family starts vaulted 10.7%. Building permits eked up to 1229K as an increase in the single-family category (+2.7%) more than offset a drop in the multi-family segment (-3.3%). Separately, the home builder sentiment index remained unchanged at 63 in November.

The weekly jobless claims report for the week ended November 12 showed initial claims fell 19K to 235K, their lowest level since November 1973. This flew in the face of consensus, which had forecast a 3K increase to 257K. The more reliable 4- week moving average showed initial claims declined to 253.5K, down 6.5K from the previous week’s revised average. Initial claims have been below the 300K mark for 89 consecutive weeks, the longest such streak since 1970. Continuing claims for the week ended November 5 dropped 66K to 1.977 million, their lowest point since April 2000. The insured unemployment rate edged down one tick to 1.4% from the previous week’s unrevised rate.

In October, retail sales were up 0.8% after increasing an upwardly revised 1.0% the previous month. For a second consecutive month, sales were higher in 11 of the 13 major categories. Furniture and restaurants were the only categories to register lower sales. Control-group sales used to calculate GDP rose 0.8% m/m.

Again in October, import prices rose 0.5% on the back of a 7.5% jump in petroleum prices. Ex-petroleum, prices were down 0.1%. We expect non-fuel import prices to remain weak in the coming months thanks to the USD/CNY rate, which fell to a new multi-year low. This development will continue to depress prices for goods from the United States’ largest import trade partner (China accounts for 21.5% of total U.S. imports). So far this quarter, the CNY is already down more than 6% y/y against the USD. This is its sharpest decline since China joined the World Trade Organization in 2001.

Industrial production was flat in October, disappointing consensus expectations for a small increase. What’s more, the prior month’s growth was revised down from +0.1% to -0.2%. In October, output gains of 0.2% in manufacturing (driven in part by autos) and 2.1% in mining were exactly offset by a decline of 2.6% for utilities (following a 3% drop the prior month). The capacity utilization rate stood at 75.3%. While disappointing at first glance, the lack of industrial output growth in October and the downward revision to the prior month must be interpreted with caution. Weakness in the past two months was largely due to utilities, whose output is influenced by the weather, among other things. In this regard, this past October was the warmest October since 1963. On the bright side, factories remain resilient while mining output is also on the mend.

The Empire State Manufacturing Index for November rose 8 points to 1.5, its first positive reading in four months. The neworders index jumped 9 points to 3.1. However, manufacturing employment in the region appears to remain under pressure, as the employment index dropped 6 points to -10.9. The Philadelphia Fed Manufacturing Business Outlook Survey continued to suggest modest growth in the region’s manufacturing sector. The index slid 2 points to 7.6., while the new-orders index advanced 2 points to 18.6 and the shipments index gained 4 points to 19.5.

In her appearance before the Joint Economic Committee of the U.S. Congress, Fed Chair Janet Yellen indicated that an increase of the fed funds target range could "well become appropriate relatively soon.” She recognized the uncertainty surrounding the next administration‘s fiscal policies and noted that this situation could last for some time. Consequently, the FOMC members will "watch what decisions [are] made and factor them into [their] thinking going forward.” Yellen added that neither the outcome of the U.S. presidential election nor the recent economic data had altered the Fed’s view expressed at its last meeting.

World – Eurozone GDP growth for Q3 was left unchanged from the first estimate of 0.3%. Separately, Eurostat confirmed that consumer prices rose 0.5% y/y in October, compared to 0.4% in September.

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