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Market Wire: Strong North American data releases restrain hopes for monetary policy easing

Canadian inflation stabilized last month, keeping monetary policy expectations largely unchanged. Data released by Statistics Canada this morning showed the Consumer Price Index rising 6.9 percent on a year-over-year basis in October, with the month-over-month change hitting 0.6 percent – narrowly missing consensus economic forecasts for a 0.7 percent gain.

Gasoline prices leapt 9.2 percent higher month-over-month, partially reflecting a rebound in global oil benchmarks. Food price gains decelerated, but kept climbing, up 0.4 percent on the month, after rising 1.2 percent in September.

Shelter costs renewed their ascent, up 0.8 percent month-over-month as higher interest rates took their toll. Mortgage interest costs increased on a year-over-year basis by 11.4 percent, the highest increase since February 1991. The homeowners’ replacement cost index, a proxy for home prices, continued to weaken, up 6.9 percent year-over-year after September’s 7.7-percent increase.

Core inflation, computed as the average of the two price measures now preferred by the Bank of Canada (trim and median), increased 0.2 percent month-over-month, up 5.05 percent over the same period last year. Core measures strip out highly-volatile categories, and are often used to develop a better understanding of price pressures in the underlying economy.

Although broader price trends are softening, inflation remains well above the Bank of Canada’s target range, and the central bank is widely expected to deliver another half-percentage-point hike in early December, before slowing – and eventually ending – its tightening efforts in the early new year.

On the other side of the 49th, a big jump in vehicle purchases lifted US retail sales to a solid gain in October – and even with highly-volatile categories excluded, sales accelerated slightly from the prior month. According to figures published by the Census Bureau this morning, total sales at retail stores, online sellers and restaurants climbed by a seasonally adjusted 1.3 percent month-over-month, and with vehicle, gas, building material, and food service sales excluded, receipts climbed 0.7 percent. Markets were expecting a 1-percent headline gain.

The dollar inched higher, and 10-year Treasury yields held steady as traders lowered odds on an imminent pivot from the Federal Reserve.

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