Has inflation peaked? Canadian CPI less than expected in August

Notable at a headline level was the decline in energy prices during the month, while food prices rose at the fastest pace since 1981. When you peel back the inflation onion, we are witnessing a meaningful slowdown in shelter prices, despite rising mortgage rates, and slowing durable goods prices, a sign that we may have passed peak levels of goods demand and global supply shortages.

Market pricing for the Bank of Canada overnight rate is now declining below 4%.² The next BoC meeting takes place October 26, with September inflation data in hand. It’s all looking like peak inflation and interest rates have arrived on Canadian shores.

Canadian fixed income has been materially outperforming other global bond markets in 2022.² The key drivers of this outperformance, in our view, have come from a faster tightening of monetary policy, improving credit quality, and demand from longer-term investors who are de-risking portfolio asset allocations. In our view, today’s data may add further fuel to Canadian fixed income outperformance.