*Updated* Ongoing Bank of Canada Benchmark Rate Announcements

[chemgear]

Originally Posted by Bill Bumface

Nothing says "community spirit" like a gated community with 1/4 acre lots and front drive garages to get everyone in and out without having to interact with each other.

I look forward to the uptick in kidnapping, assault and murder as neighbors fight each other over noise and for scant parking spaces in front of each others lawns and driveways. Hopefully it'll be like a cross between the Purge and the Squid game in every community!

[The Fonz]

CPI release coming tomorrow - forecast is 4%, continuing the uptrend. Previous 2 were:

Aug - 3.3%
July - 2.8%

[Mr.Coffee]

Oil prices.

[opendoor]

Yeah, I think core inflation will be the more interesting number, and the one that the Bank of Canada will tend to rely on more for guiding policy. Energy increases alone will probably add ~0.2-0.3% to the month-over-month number compared to if they were flat. If they're expecting 4.0% for headline inflation, that would mean that monthly inflation was ~0.4%, so non-energy would be pretty flat in that scenario.

[Firebot]

https://www.theglobeandmail.com/inve...-is-done-with/

Canada’s annual inflation rate in August jumped to 4.0% from 3.3% in July on higher gasoline prices, while two of the three core inflation measures also rose, Statistics Canada said. Analysts polled by Reuters had forecast inflation would hit 3.8%. Month-over-month, the consumer price index rose 0.4% compared to a predicted 0.3% gain.

Money markets were not positioned for such a hot inflation number. Canadian bond yields shot up immediately, with the five-year bond yield - influential on were fixed mortgage rates are set - rising 15 basis points to a fresh 16-year high of 4.2%. The Canadian dollar extended gains from earlier in the morning and at last check was up about half a cent against the greenback.

Credit markets quickly priced in stronger odds that the Bank of Canada may again hike its trend-setting overnight rate to combat inflationary pressures. While implied probabilities in swaps markets suggest a 62% chance that rates will stay unchanged at the BoC’s next policy meeting on Oct. 25, that’s down from 78% odds prior to the 830 am ET data release. And at the Bank’s following meeting in December, swaps markets are now pricing in slightly better odds that the Bank will hike rates again rather than leaving them unchanged.


Excluding food and energy, prices rose 0.3% seasonally-adjusted. Mortgage-interest costs were once again a big driver of the strength. Consumers did, however, receive some discounts on travel, with airline fares and travel tours prices down in August. Looking through all of this volatility, the underlying trend in prices was still hotter than anticipated.

Core inflation (the number the BoC mainly utilizes) also went up. The bond market seems to have not accounted for this surprise surge, seeing the 5 year bond spike to 4.172% just shy of the 52 week high. This means higher interest rates for fixed which will reflect in core inflation numbers.

Looking at the underlying numbers and the reasons for the rise, it's even more bleak. The global diesel shortage appears likely to get much worse due to high demand and lack of refining capability.

https://www.reuters.com/markets/comm...mp-2023-09-13/

- Global distillate fuel oil inventories remain much lower than normal for the time of year which is putting strong upward pressure on fuel prices.

Distillates such as diesel, gasoil and heating oil are the primary fuels used by the industrial economy and inventories are normally strongly correlated with the manufacturing cycle.

But stocks in all the major consuming regions were severely depleted in August, despite a prolonged slowdown in manufacturing activity and freight movements over the previous year:

U.S. distillate fuel oil inventories were 23 million barrels (-16% or -1.31 standard deviations) below the prior ten-year seasonal average in August.
European distillate inventories were 35 million barrels (-8% or -1.11 standard deviations) below the ten-year seasonal average.
Singapore distillate stocks were more than 3 million barrels (-31% or -1.44 standard deviations) below the ten-year average.

Distillate consumption is set to increase further if the U.S. economy manages a soft landing and starts to expand faster again.

If the economies in Europe and China also emerge from their current contraction, that would boost diesel use even further.

https://time.com/6315039/diesel-shortage/

“Diesel is the fuel of the 18-wheeler truck that moves products from factory to market, so when prices spike, those higher transportation costs get passed on to businesses and consumers,” said Clay Seigle, director of global oil service at Rapidan Energy Group.

Freight shipping costs, after a 6 month freefall and a large factor in recent inflation relief is starting to come off its 2 year lows as well.

All around it's clear we are unlikely to stick to current interest rates and inflation forecasts too optimistic and unlikely to come to bear, there is too much negative pressure.

[Yoho]

https://twitter.com/user/status/1704129318513688581

[Azure]

But I thought we don't want to use fossil fuels anymore cause they're bad for the environment, amirite? What a mess.

[opendoor]

Originally Posted by Azure

But I thought we don't want to use fossil fuels anymore cause they're bad for the environment, amirite? What a mess.

What a weird point. Beyond environmental reasons, shifting to energy sources that aren't commodity based is one of the primary benefits of renewable energy. Someone with an electric vehicle in a place with stable electricity prices like BC or Quebec can roughly predict what their fuel costs are going to be even 5 years from now; you can't even reliably predict what gas or diesel costs will be next month. That cost certainty is invaluable and as more and more energy moves away from commodities, prices will be more stable. Look at BC (maroon line) vs. Alberta (red line) in terms of inflation of electricity prices:

Spoiler!

[bizaro86]

Originally Posted by opendoor

What a weird point. Beyond environmental reasons, shifting to energy sources that aren't commodity based is one of the primary benefits of renewable energy. Someone with an electric vehicle in a place with stable electricity prices like BC or Quebec can roughly predict what their fuel costs are going to be even 5 years from now; you can't even reliably predict what gas or diesel costs will be next month. That cost certainty is invaluable and as more and more energy moves away from commodities, prices will be more stable. Look at BC (maroon line) vs. Alberta (red line) in terms of inflation of electricity prices:

Spoiler!

That's not a fossil fuel issue, it's a transition issue. Alberta electricity prices would still very likely be low and stable if we were using all the coal plants as coal plants to their full capacity.

Not saying we should have done that, but until the baseload gets replaced prices will be volatile. Of course, right now there are really no stable baseload type generators under construction...

[opendoor]

Originally Posted by Firebot

Core inflation (the number the BoC mainly utilizes) also went up.

Which is almost entirely driven by the side effect of high rates (i.e. mortgage interest) rather than inflation itself. If mortgage interest was flat, year-over-year core inflation would be about 2.5%. And it has been remarkably stable over that time period:

12-month: 2.5%
9-month annualized: 2.4%
6-month annualized: 2.5%
3-month annualized: 2.4%

[opendoor]

Originally Posted by bizaro86

That's not a fossil fuel issue, it's a transition issue. Alberta electricity prices would still very likely be low and stable if we were using all the coal plants as coal plants to their full capacity.

Not saying we should have done that, but until the baseload gets replaced prices will be volatile. Of course, right now there are really no stable baseload type generators under construction...

I don't know, even if you look back 10-20 years ago, the same effect is there. There were points in 2011 where Alberta had 70% year-over-year inflation of electricity prices. And many other points with -30% inflation.

Maybe transitioning has exacerbated that, but electricity prices in Alberta are clearly volatile and they have been for decades.

[Yoho]

Originally Posted by opendoor

Which is almost entirely driven by the side effect of high rates (i.e. mortgage interest) rather than inflation itself. If mortgage interest was flat, year-over-year core inflation would be about 2.5%. And it has been remarkably stable over that time period:

12-month: 2.5%
9-month annualized: 2.4%
6-month annualized: 2.5%
3-month annualized: 2.4%

So how exactly did inflation come down in the 80s when interest rates were 18%?

[Bring_Back_Shantz]

Originally Posted by bizaro86

That's not a fossil fuel issue, it's a transition issue. Alberta electricity prices would still very likely be low and stable if we were using all the coal plants as coal plants to their full capacity.

Not saying we should have done that, but until the baseload gets replaced prices will be volatile. Of course, right now there are really no stable baseload type generators under construction...

Cascade (multi cycle NG) is set to come on line late this year/early next year
900 MW capacity

That'll be a pretty nice piece of baseload generation.

[iggy_oi]

Originally Posted by Yoho

So how exactly did inflation come down in the 80s when interest rates were 18%?

In Alberta housing prices crashed by over 25% in the first half of that decade so that may have played a role.

[opendoor]

Originally Posted by Yoho

So how exactly did inflation come down in the 80s when interest rates were 18%?

Time. Inflation is a year-over-year measure, so once you've hit your peak mortgage interest inflation, its effect recedes after that. Imagine prices of something doubled overnight but then stayed there. You'd have 100% inflation for a year, but in month 13 you'd all of the sudden have 0% inflation for that item. Mortgage interest is the same; once the gains start to be absorbed for a year, the inflation number begins to drop quickly. But during that period of rising mortgage interest inflation, it artificially drags the headline number upwards (since it's policy driven, and not supply/demand driven).

So in 1981, they hit their terminal rate in August and mortgage interest inflation peaked in April 1982. By the time they were a year past their terminal rate, mortgage interest inflation was dropping very fast. And then by 1983 it (and the headline inflation number) were back down to a more normal range.

And it's also a question of the weight of the effect. Mortgage interest pushing 10.5% inflation to 12% isn't as noteworthy as pushing 2.5% inflation to 4%, which is more what we're seeing now. The former is still out of control even if you exclude mortgage interest, whereas the latter isn't so much.

[blankall]

Originally Posted by iggy_oi

In Alberta housing prices crashed by over 25% in the first half of that decade so that may have played a role.

Currently, we've got rising interest rates but no real drops in prices, with prices actually creeping up in some markets.

[bizaro86]

Originally Posted by Bring_Back_Shantz

Cascade (multi cycle NG) is set to come on line late this year/early next year
900 MW capacity

That'll be a pretty nice piece of baseload generation.

Sorry, should have said stable-price baseload.

I agree that is baseload, but since NG prices are very volatile their cost of power is also likely be very volatile.

That's quite different than a coal/nuclear plant where fuel costs are low and stable in terms of a stabilizing effect on power prices.

[iggy_oi]

Originally Posted by blankall

Currently, we've got rising interest rates but no real drops in prices, with prices actually creeping up in some markets.

What a time to be alive

[Firebot]

Originally Posted by opendoor

Which is almost entirely driven by the side effect of high rates (i.e. mortgage interest) rather than inflation itself. If mortgage interest was flat, year-over-year core inflation would be about 2.5%. And it has been remarkably stable over that time period:

12-month: 2.5%
9-month annualized: 2.4%
6-month annualized: 2.5%
3-month annualized: 2.4%

Where are you getting these numbers? And question foremost, is why are you using them?

https://www.bankofcanada.ca/rates/price-indexes/cpi/

CPIX
The CPI excluding eight of the most volatile components (fruit, vegetables, gasoline, fuel oil, natural gas, mortgage interest, inter-city transportation and tobacco products) as well as the effect of changes in indirect taxes on the remaining components.

CPIX is 3.3 over 12 months which can be seen on the chart. This category excludes food, energy, and mortgage interest
Stat Can also breaks down in different ways, none of which are close to your number.

https://www150.statcan.gc.ca/n1/dail...g-a002-eng.htm

July 2023 August 2023
All-items Consumer Price Index 3.3 4.0
All-items excluding gasoline 4.1 4.1
All-items excluding food 2.4 3.5
All-items excluding mortgage interest cost 2.4 3.2

So where are you getting the 2.5 from? I have not seen this number quoted anywhere. Are you arbitrarily choosing to change the mortgage interest inflation to 0%, including this in your calculations and using that to measure?

If that is the case, which it seems like, I feel you are being disingenuous in your approach and misleading about the nature of inflation and how you portray it for reasons that you should explain. We know that mortgage interest rates are directly impacted by BoC policy and is inflation caused by rate hikes, but those same policies also impact inflation positively elsewhere.

Selectively removing the negative effects of interest rates on inflation and flat lining the mortgage interest category, while keeping the positive effects, while also omitting volatile categories that make up CPI, is misleading.

[GGG]

I think it depends on what question you want to answer.

If the question is along the lines of
Have interest rates hikes worked to curb inflation or Are future interest rate hikes required to further curb inflation then the way Opendoor is framing the question is correct.