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Market Wire: Inflation and Growth Prints Keep North American Central Banks On Course

American households kept spending last month and the Federal Reserve’s preferred inflation measure maintained its momentum, keeping the central bank on track toward a 75 basis point hike at next week’s meeting.

Data released by the Bureau of Economic Analysis this morning showed inflation-adjusted household outlays climbing 0.3 percent in September, with services spending decelerating relative to August, while vehicle and drug purchases lifted the tangible goods sector.

Personal income rose 0.4 percent month-over-month, led by a 0.6 percent increase in private sector wages and salaries.

The core personal consumption expenditures index – targeted by the Federal Reserve – rose 0.5 percent from August, up 5.1 percent year over year – well aligned with consensus estimates that were set at 0.5 percent and 5.2 percent, respectively.

According to a separate report, the Employment Cost Index rose 1.2 percent in the third quarter, decelerating from the three months prior and matching market estimates.

Yields slipped and the greenback traded sideways after the releases, with markets remaining broadly convinced that a peak in inflation and Fed hawkishness is near.

Separately, the Canadian economy grew 0.1 percent on a month-over-month basis in August as a 0.3 percent jump in services offset a -0.3-percent contraction in the much smaller goods-producing sector. A powerful rebound in sales at gasoline stations helped lift the headline, but other retail outlets also posted relatively strong numbers, suggesting that the Bank of Canada hasn’t taken the wind out of consumer sails just yet.

An advance estimate for September pointed to a 0.1-percent expansion that would lift third-quarter growth to an annualized 0.4 percent – weak, but better than many observers had hoped.

The Canadian dollar fell in the minutes after the data hit the wires, but the timing – coinciding with major US data prints – suggests no firm conclusions can be drawn about the longer term impact on market pricing.

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