Canada: Don’t give too much attention to the significant drop in inflation - NBF

Matthieu Arseneau, analyst at National Bank of Canada, explains that the decline in the CPI during September in Canada, was largely due to a reversal in the air transportation component. 

Key Quotes:

“Canada’s consumer price index fell 0.4% (not seasonally adjusted) in September, taking the year-on-year inflation rate down to 2.2% (from 2.8%), well-below consensus calling for 2.7%.”

“Headline inflation came in well below expectations in September. One should not give too much attention to this significant drop since it was largely due to a reversal in the air transportation component after surges the prior months. The 17%-drop recorded for that component in September explains approximately half of the monthly aggregate drop of 0.4% (NSA).”

“Note that back in April, Statistics Canada announced that year on year figures for air transportation – and thus overall inflation - could be misleading for a year due to a change in the seasonal pattern (a new source is now used)."

“The Bank of Canada’s core inflation preferred measures are not affected by that kind of volatile movements. True, our in-house replication of CPI-Trim and CPI-median were weak on a month-to-month basis (both at +0.1%, seasonally adjusted) but this is less concerning than the -0.1% indicated by the headline figure. As a result of this softness in underlying inflation, all three core measures weakened one tick on an annual basis. The average now stands right on the mid-point target of the central bank of 2.0%.”