PM spotlight

Steve Morris, CFA, Senior Managing Director & Portfolio Manager



Steve’s take: “As of September, Canadian headline CPI was up 6.9% year-over-year and 0.1% month-over-month (chart 1). While the year-over-year figure marks the third consecutive monthly slowdown in headline inflation, the month-over-month increase exceeded market consensus of a 0.1% decline, indicating that the Bank of Canada may need to continue taking action to tame inflation.”


Food purchased from grocery stores accounts for 1.3% of the 6.9% year-over-year inflation (chart 2), driven by an 11.4% year-over-year increase in prices. Food purchased from stores remains among the top contributors to both year-over-year and month-over-month inflation.

Private transportation accounts for 1.3% of year-over-year inflation, representing a smaller proportion of overall inflation compared to Q2. This was primarily due to falling gasoline prices (-7% month-over-month). Price decelerations in this category have been a large contributor to the deceleration in overall year-over-year inflation.

Shelter had a 2.1% contribution to year-over-year inflation in September. Shelter costs increased 0.5% month-over-month, the fastest pace since May. Much of this came from a 2.8% month-over-month increase in mortgage interest costs which is the largest increase in decades. Rents and homeowner replacement costs were both little changed.

Chart 1: CPI Change

Chart 1

Chart 2: Canada headline CPI contribution year-over-year

Chart 2



Steve’s take: “In its Fall Economic Statement 2022, released on November 3, the Government of Canada announced its decision to cease issuance of real return bonds (RRBs) effective immediately. Plans with existing RRB allocations backing liabilities could consider holding these positions to maturity as they should continue to provide a good hedge to their liabilities. To supplement their inflation hedge going forward, plans may look to use U.S. Treasury inflation-protected securities (TIPS), U.S. inflation swaps or real assets, depending on their objectives and risk tolerances.”


Chart 3: 3-Month Real Estate Returns vs. Changes in Canada and U.S. CPI 

Chart 3

Historically, inflation has tended to follow similar dynamics in both Canada and the U.S., with similar CPI movements in both countries (chart 3). This suggests that U.S. TIPS and inflation swaps may be a potential option going forward for investors wishing to hedge liabilities linked to Canadian inflation. Despite some variability between real estate investment returns and CPI movements observed quarter-over-quarter, real estate has historically shown stronger correlation with changes in inflation over longer holding periods.

$1B of 2054 Federal RRBs were auctioned in 2022 (chart 4). RRB issuance by the Government of Canada was generally higher pre-COVID, but has slowed since. Prior to cancellation of the December auction, RRB issuance levels in 2022 were expected to match 2021. 

Chart 4: Federal Real Return Bonds auctioned ($B)

Chart 4


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CPI change (chart 1)

12-month, YTD, and MoM change in the Statistics Canada Consumer Price Index, monthly, not seasonally adjusted (Table 18-10-0004-01)

Canada headline CPI contribution year-over-year (chart 2)

Bank of Canada Consumer Price Index Portal

Long-term break-even inflation (chart 3)

Calculated as ((1 + Government of Canada benchmark bond yields, long term [CANSIM V39056]/2)/(1 + Real return benchmark bond yield, long term [CANSIM V39057]/2))^2 – 1.

Break-even inflation curve (%) (chart 4)

Sourced from Bloomberg

Federal Real Return Bonds auctioned ($B) (chart 5)

Bank of Canada Government Securities Auctions, Government of Canada Historical Auction Results, RRB Results

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© SLC Management, 2022