By Ketki Saxena
Investing.com -- The big story in Canadian economics today was the drop in the Consumer Price Index (CPI) numbers, with the headline 7% inflation number below the 7.3% increase anticipated by economists, and lower than last month’s 7.6% reading.
While CPI moderates, a survey and report released today by the National Payroll Institute provides a more on-the-ground indication of how Canadian consumers are coping with searing inflation.
According to the survey, the number of Canadians living paycheque-to-paycheques increased by 26% compared to a year ago. 11% of Canadians are spending more than their paycheque, the highest level recorded since the survey was first started 14 years ago.
Another survey, released today by Dalhousie University’s Agri-Food Analytics Lab, noted how Canadians are changing their grocery shopping habits to cope with food prices at a 41-year high (today’s CPI shows that grocery costs surged 10.8% year over year).
The survey found that almost a quarter of Canadians (24%) are cutting back on how much food they buy because of higher inflation. Only 28.2% of respondents said they have not made any changes to help save money at the grocery store, while others reported using loyalty programs (33.%), reading weekly flyers (32.%) and using more coupons (23.9%).
On a moderately positive note, excluding food and energy products, core CPI growth dropped lower to 5.3%.
However, RBC (TSX:RY) Economist Claire Fan notes that notes “Core inflation is not expected to peak until “later in q4 this year” as “Growth for services prices in the meantime, especially those that are leisure and travel related is expected to remain higher for longer, supporting strength in core inflation”. Prices for goods however are expected to moderate.
Fan further believes that “Inflation pressures still too broad to prevent further central bank rate hike”.
This is a view reiterated by BMO (TSX:BMO) Managing Director of Canadian Rates and Macro Strategist of Fixed Income Strategy Benjamin Reitze, who, in a note to clients wrote that “Inflation remains far too high, and the breadth of price increases hasn't backed off much, if at all.”
All in all, Reitze believes that while “Policymakers will breathe a modest sigh of relief… they're miles from being out of the woods with inflation still nowhere near target”. RBC’s Claire Fan also believes that these inflation trends and today’s data “Should be more than enough to keep the Bank of Canada on its current hiking path”.
TD (TSX:TD), Bank of Nova Scotia (TSX:BNS) and RBC all have the terminal rate – the point at which the Bank of Canada is expected to top out at in the current rate hike cycle - at 4% another three-quarters of a percentage point of rate-hikes are likely before the end of 2022.