Canada’s annual inflation rate rose two per cent in October, a setback for the Bank of Canada (BoC) that has economists split on whether it will justify another 50 basis point rate cut in December.
On Tuesday, Statistics Canada said the Consumer Price Index (CPI) accelerated to two per cent, from a 1.6 per cent annual pace in September, pointing to base-year effects on gasoline prices.
The BoC’s closely-watched measures of core inflation also accelerated slightly in October. CPI-median rose from 2.1 in September to 2.2 per cent, while CPI-trim climbed from 2.4 to 2.6 per cent.
“Although this report will be a disappointment for the Bank of Canada, it follows a string of reports that showed more progress than expected,” Katherine Judge of CIBC Econonics wrote following Tuesday’s announcement.”The slack in the Canadian economy that we expect to be confirmed in upcoming labour market and GDP reports has us retaining our call for a 50bp cut in December for now.”
Despite the hotter inflation reading for October, Desjardins senior director of Canadian Economics Randall Bartlett is sticking with his call for a 25 basis point rate reduction in December from the Bank of Canada.
“[BoC] Governor Macklem made clear in October that base effects—low month-over-month price growth a year ago pushing year-over-year price gains higher now—would keep inflation elevated around the turn of the year,” he wrote on Tuesday. “We think the Bank is likely to look through any short-lived reacceleration in price growth. Not only has inflation been at or below target but growth has underperformed the Bank’s expectation as well.”
Canada’s central bank is scheduled to issues its latest rate decision on Dec. 11. Last month, Bank of Canada Governor Tiff Macklem said “Canadians can breath a sigh of relief” and “don’t have to worry about big changes in their cost of living.”
Economists polled by Reuters expected the annual inflation rate rose to 1.9 per cent last month, according to LSEG Data & Analytics.
On a monthly basis CPI rose 0.4 per cent in October. Seasonally adjusted, CPI increased 0.3 per cent. Statistics Canada said prices rose at a faster pace in October versus September in all provinces.
Gasoline prices fell less in October (-4.0 per cent) than they had in September (-10.7 per cent). “The smaller decline is partly attributed to a base-year effect, as prices fell 6.4 per cent month over month in October 2023, stemming from lower refining margins and weaker global oil consumption,” the federal agency stated on Tuesday.