Weekly Economic Watch‏

– The consumer price index was up 0.2% in September (consensus was expecting +0.1%), causing the year-on-year inflation rate to remain unchanged at 1.1%. In seasonally adjusted terms, CPI rose 0.2% with five of the eight broad categories seeing price increases. There were price gains for alcohol/tobacco (+0.4%), transportation (+0.3%), health/personal care (+0.2%), shelter (+0.2%) and food (+0.1%) while declines were observed for clothing/footwear (-1.2%) and recreation/reading (-0.3%). The CPI for household operations was flat. The core CPI, which excludes eight of the most volatile items, rose 0.2% causing the year-onyear inflation rate to remain unchanged at 1.3%. In seasonally-adjusted terms, core CPI was up 0.1% in September, after being flat in August. On a 3-month annualized basis, core inflation is running at a soft 0.7%, while the headline is at 1.3%. Excluding food and energy, prices were also up 0.1% in seasonally-adjusted terms, with the 12-month rate remaining very mild at just 1.0%.

The annual services inflation rate remained unchanged at just 1.5%. The goods annual inflation rate dropped to 0.5% from 0.6%. Despite this month’s increase, total CPI is running at 1.3% on a 3-month annualized basis and 1.1% on a year-on-year basis, well within the bottom half of the Bank of Canada's 1%-to-3% inflation target range. Given the softness observed in commodity prices (except for oil), the remaining slack in the labor market, and the strength of the loonie, a significant rebound in the CPI seems very unlikely. All told, the soft inflation picture is unlikely to change the BoC’s stance for now.

Manufacturing shipments registered a 0.2% drop in August, flying in the face of the 0.2% increase expected by consensus. Factory sales were down in 11 of 21 industries. Sectors that saw higher sales included transportation, petroleum and coal products, electrical equipment, and metals. Manufacturers posting lower sales included those producing machinery and food. In real terms, sales retreated 0.3%. Real orders rose 0.6% after falling sharply the month before. Real inventories dipped 0.1%, less so than shipments, thus lifting the real inventory-to-sales ratio one tick to 1.44.

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