Bank of Canada: Underlying Inflation Is Inconsistent With 2% Target

• The Bank of Canada on Tuesday said recent volatility in headline inflation is not unusual but the underlying trend shown by core measures was inconsistent with bringing inflation down to the 2% target. Earlier on Tuesday, August inflation figures showed a jump in the headline number to 4.0% from 3.3% in July, higher than most analysts had anticipated.
• One of the core inflation measures, CPI-trim - which leaves out spiking mortgage interest costs - has been between 3.5%-4% in recent months. "Underlying inflation is still well above the level that would be consistent with achieving our target of 2% CPI inflation," Deputy Governor Sharon Kozicki said in a speech at the University of Regina in Saskatchewan.
• The Bank of Canada kept its key rate at 5% on Sept 6, noting the economy had entered a period of weaker growth, but said it could hike again should price pressures persist. In her speech, Kozicki also said that while there is evidence that previous rate hikes are slowing demand, inflation remains too high, "and that tends to mean that real interest rates need to remain high".
• After the August inflation data was released, money markets raised bets for a rate hike after the next policy meeting on Oct. 25, seeing a 42% chance of an increase compared with 23% before.

(Source: Reuters)