Newspaper article The Canadian Press

As Price Pressures Ease, Need for Interest Rate Hikes Vanish, Say Economists

Newspaper article The Canadian Press

As Price Pressures Ease, Need for Interest Rate Hikes Vanish, Say Economists

Article excerpt

Canada's inflation stays at 1.2% in September

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OTTAWA - Inflation pressures in Canada continued to ease in September, setting the conditions for what economists believe will be a lengthy period of low interest rates.

Statistics Canada reported Friday that last month's inflation rate stayed at 1.2 per cent-- matching a two-year low also achieved in August and May of this year.

Perhaps the most eye-catching result was that core inflation -- which measures underlying price pressures by excluding volatile items such as gasoline and some seasonal foods -- dropped three-tenths of a point to 1.3 per cent and was below the Bank of Canada's call for the third quarter.

Given excess capacity in the economy and expected slow the remainder of the year, both short and long-term interest rates are likely to remain super low, said David Madani, an analyst with Capital Economics.

"The fact is that not just core inflation, but any measure of underlying inflation remains very subdued," he explained.

"In this environment obviously the Bank of Canada isn't really in any hurry to raise interest rates and there's obviously good reason for that, the slowdown in the global economy and now signs that the domestic housing market is correcting."

If central bank governor Mark Carney were to act in the next few months, said Madani, it would be more likely to lower the one per cent policy rate than raise it.

David Watt, chief economist at HSBC Bank Canada, said he expects Carney may remove his tightening bias language in next Tuesday's interest rate announcement, as he did in a speech in British Columbia earlier this week. This would signal to markets that interest rates will likely remain stimulative for an extended period.

The only fly in the ointment to that scenario was a revision by Statistics Canada earlier this week that found household debt at 163 per cent of income, about where they were in the U. …

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