The Bank of Canada has made clear that its until-recently ”preferred” measures of core inflation are less meaningful in a volatile economy. (Andrew Francis Wallace/Toronto Star via Getty Images) · Andrew Francis Wallace via Getty Images
Canada’s annual inflation rate dipped to 2.2 per cent in October, according to Statistics Canada data published Monday. The data were in line with the expectations of financial industry observers, according to consensus estimates published by CIBC Economics.
Gas prices were once again a main driver, with prices in October falling 9.4 per cent compared to a year earlier. That was a steeper drop than in September, when a 4.1 per cent decline in gas prices helped push CPI up to 2.4 per cent year-over-year. Excluding gasoline, consumer prices rose 2.6 per cent in October, unchanged from September.
Economists said the data reinforce the Bank of Canada’s view that interest rates don’t need to move for now, noting that although some categories are seeing upward price pressures, the broader economy is far from overheating.
“On the surface, this looks to be a mildly friendly report with headline and median inflation rates dipping,” BMO chief economist Douglas Porter said in a note to clients. “However, the sources of relief were well-known ahead of time, and the new news here is not great, driven by persistent strength in insurance costs and a snap higher in cell charges.”
RBC economist Abbey Xu wrote that nearly half of consumer prices have been growing at an annualized rate above three per cent over the last three months.
“Core price pressures remain sticky at rates above the BoC’s inflation target, consumer demand has proven resilient to-date despite international trade uncertainty, and fiscal policy is set to provide support to growth in the year ahead,” Xu noted, adding that these factors suggest the Bank of Canada will not make further interest rate cuts.
TD Bank economist Andrew Hencic agreed. “Inflation is unlikely to fall below the lower end of the target range given the disruptions on the supply side of the economy, but it is also unlikely to sharply accelerate amid expectations for tepid domestic demand.”
Markets now put the odds of another interest rate cut by April at just 30 per cent, Hencic noted.
Home and auto insurance costs continued to climb, up 6.8 and 7.3 per cent respectively, year-over-year. Statistics Canada noted that over five years, “prices for homeowners’ home and mortgage insurance rose 38.9 per cent nationally, while prices for passenger vehicle insurance premiums rose 18.9 per cent.”
Prices for wireless phone services rose 7.7 per cent, the first annual increase in two and a half years, following price hikes from several major carriers. Prices for wireless and wireline telephone services combined were up 7.9 per cent year-over-year, Porter noted, “the largest yearly rise since 1982.”
Natural gas prices fell 17 per cent year-over-year. Grocery prices were up 3.4 per cent year-over-year in October, down from the 4.0 per cent figure in September. However, Statistics Canada’s report noted that “prices remained elevated and have exceeded overall inflation for nine consecutive months.”
“Overall, while inflation decelerated in October, the move was in line with expectations and it would take a longer period of easing price pressures, combined with indications of economic growth deteriorating again, to bring the Bank of Canada back off the sidelines,” CIBC economist Andrew Grantham wrote. “We continue to forecast no change in the overnight rate through to the end of next year.”
In comments sent to Yahoo Finance Canada, Philip Petursson, IG Wealth Management’s chief investment strategist, cautioned that annual inflation could edge higher in the months ahead simply because prices fell this time last year.
“This isn’t renewed price pressure, just math,” he said. “Last year’s November and December prints were flat to negative, so any positive readings now will lift the year-over-year rate. It’s temporary, but higher, nonetheless.”
The BoC’s two preferred measures of inflation — which strip out some volatile prices — eased in October. CPI-median fell to 2.9 per cent from 3.1 per cent, while CPI-trim fell to 2.9 per cent from 3.0 per cent. However, the BoC has stated that it is becoming less reliant on those data points in isolation.
On a monthly basis, CPI increased 0.2 per cent per cent in October. Seasonally adjusted, CPI rose 0.1 per cent.
John MacFarlane is a senior reporter at Yahoo Finance Canada. Follow him on X @jmacf.
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