Canada’s consumer price index accelerated in October, but that increase will not deter a rate cut by the Bank of Canada in December, though the size of the cut is up for debate.
Canada’s CPI accelerated to 2.0 per cent, up from 1.6 per cent in September, because of a smaller decline in gasoline prices (4.0 per cent). But two sticky categories, services and shelter, decelerated.
Excluding gasoline, the consumer price index increased by 2.2 per cent, the same as in the prior two months. On a monthly basis, it rose by 0.4 per cent.
While core inflation increased slightly, the data showing an economy with excess supply points to overall inflation staying near the Bank of Canada’s target in the upcoming months. The policy rate remains restrictive, and our baseline forecast is for a 25 basis-point rate cut in December. But more rate cuts will be needed to keep headline inflation near its target.
Since gasoline prices are volatile, month-to-month fluctuations are unlikely to sway the Bank of Canada’s rate decision.
But two of the most stubborn categories in the overall index, services and shelter, showed progress in the effort to reduce inflation.
Prices for goods rose by 0.1 per cent on a year-over-year basis while prices for services decelerated to 3.6 per cent, the smallest yearly increases since January 2022. Soft labour demand could cool wage growth, and consequently prices for services.
Even though wage growth exceeds inflation at close to 5 per cent, it could fall further in the next few months.
Read more of RSM Canada’s insights on inflation and the middle market.
Shelter prices also decelerated as mortgage interest payments grew more slowly because of lower interest rates. In the rental market, moderate demand was met with an influx of rental supply, leading to a modest rise in rent prices.
At the same time, an increase in property taxes played a role in the monthly change in prices.
Property taxes rose by 6.0% on a year-over-year basis, the highest annual raise since 1992 because of changes in the assessed value of homes, municipal and provincial tax rates, levies by municipalities for specific services, and homeowner tax rebates.
Groceries prices climbed by 2.7 per cent on an annual basis, higher than the headline number. Amid widespread disinflation, the overall deceleration in grocery prices has not been consistent.
