Economist highlights 'sticky underlying inflation' despite drop in headline figure
Canada’s annual inflation rate eased to 2.2% in October, according to Statistics Canada, as falling gasoline and slower-rising grocery prices helped cool consumer costs.
The latest data suggested the Bank of Canada (BoC) is likely to keep its policy rate steady at its next decision, with the central bank’s preferred inflation measures also trending lower.
The headline inflation figure, down from 2.4% in September, was largely driven by a 9.4% year-over-year drop in gasoline prices.
Excluding gasoline, the consumer price index (CPI) rose 2.6%, matching September’s pace.
Mortgage interest costs, a key concern for borrowers, increased at an annual pace of 2.9% in October. That's the first time in more than three years that this figure has dipped below the 3% mark.
However, rent inflation accelerated above 5% for the second consecutive month, highlighting ongoing pressures in the housing market.
Core inflation measures edge closer to BoC target
The BoC’s preferred core inflation gauges, CPI-median and CPI-trim, both edged down in October, landing at 2.9% and 3.0% respectively.
“With various year-over-year core measures still averaging closer to three per cent than two per cent, the inflation data are likely to reaffirm that the Bank of Canada is on hold for the foreseeable future,” Andrew Grantham, CIBC economist, said.
On a monthly basis, CPI inflation rose 0.2%, in line with forecasts. The breadth of inflationary pressures narrowed, with about 34% of CPI items rising above a 3% yearly pace, down from 38% previously.
RBC Economics recently pointed to persistent consumer spending and a stabilizing labour market as key reasons for the central bank’s pause.
“Sticky underlying inflation due to resilient domestic demand is why we think the Bank of Canada will have a hard time justifying cutting the overnight rate from 2.25% to outright stimulative levels,” Claire Fan, senior economist at RBC, said.
Housing and food costs remain elevated
While the pace of grocery price increases slowed to 3.4% year-over-year, food costs have exceeded overall inflation for nine straight months.
Meanwhile, shelter costs, including rent and insurance, continued to climb, with home and mortgage insurance premiums up 6.8% nationally.
Market reaction and outlook for mortgage rates
The Canadian dollar weakened slightly after the data release, while government bond yields dipped. The central bank’s next move will hinge on whether core inflation continues to drift toward its 2% target.
For now, October’s data point to a holding pattern, offering a measure of relief for mortgage holders and industry professionals.
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