USD/CAD

Statistics Canada said the annual inflation rate edged up to 2.4% from 2.2% in September.

The central bank, which has consistently said inflation will move back down toward its 2% target by early 2019, is due to announce its next interest rate decision on Decemeber 5.

Market expectations of an interest rate hike on December 5, as reflected in the overnight index swaps market, dipped to 23.20% from 23.40%. Earlier this month, that figure was above 30%.

Two of the three central bank's three core inflation measures posted gains while CPI common, which the bank says is the best gauge of the economy's underperformance, was unchanged at 1.9%.

The Bank of Canada has hiked rates five times since July 2017, and says more increases will be needed. Rates are rising at "exactly" the right pace, Governor Stephen Poloz said on November 5.

Separately, Statscan said the value of retail trade rose by 0.2% in September from August, in part due to higher sales at food stores. Stripping out the effect of price changes, volumes increased by 0.5%.

U.S. homebuilding rose in October amid a rebound in multi-family housing projects, but construction of single-family homes fell for a second straight month, suggesting the housing market remained mired in weakness as mortgage rates march higher.

Other details of the report published by the Commerce Department on Tuesday were also soft. Building permits declined last month and homebuilding completions were the fewest in a year. Housing starts increased 1.5% to a seasonally adjusted annual rate of 1.228 million units last month.

Building permits fell 0.6% to a rate of 1.263 million units in October. The market had forecast housing starts rising to a 1.225 million-unit pace last month.

The struggling housing market is in stark contrast with the broader economy, which has enjoyed two straight quarters of robust growth and an unemployment rate at a near 49-year low of 3.7%. Prolonged housing weakness, together with a relentless sell-off on the stock market could stoke fears over the durability of the economy's strength.

In addition to rising borrowing costs, the housing market is also being squeezed by land and labor shortages, which have led to tight inventories and more expensive homes. Many workers are being priced out of the market as wage growth has lagged.

Tuesday's data also suggested that housing supply is likely to remain tight in the near term. Homebuilding completions in October fell 3.3% to a rate of 1.111 million units, the lowest level since September 2017.

Realtors estimate that housing starts and completion rates need to be in a range of 1.5 million to 1.6 million units per month to plug the inventory gap.

The stock of housing under construction rose 0.5% to a more than 11-year high of 1.137 million units last month. But the multi-family homes segment made up just over half of housing inventory under construction last month.

Bank of Canada Senior Deputy Governor Carolyn Wilkins said that while the inflation-targeting framework has promoted the economic and financial well-being of Canadians, the decade since the fiscal crisis has shown it is not perfect.

"It is time to conduct a thorough review of the alternatives," she said.

Wilkins said the bank's estimate of the nominal neutral interest rate is lower than before the crisis, meaning it has less conventional policy firepower to use in a downturn.

The lower rate also means households and investors could take on excessive risk, leaving the economy exposed to boom-bust financial cycles.

"There are several intriguing frameworks that merit further exploration, although none is perfect. That is why I want to see a side-by-side assessment of them," she said.

Wilkins noted some economists have suggested increasing the inflation target to 3 or 4%. She said bank research done in 2016 showed this would hit people on fixed or lower incomes and could lead markets to suspect the bank might one day lift the target even higher.

"That seemed like a steep price to pay," she said.

Another option is for the bank to set a target path for the level of aggregate prices rather than an inflation rate. This could make monetary policy more effective but the idea is hard to understand, Wilkins said.

Other possibilities include frameworks that targeted both inflation as well as employment or prices, in a dual mandate.

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