Canada’s inflation rate rose to two per cent in October, as gas prices fell and food costs continued to rise, according to new data released Nov. 19th.
While gas prices dropped four percent from October 2023, this was lower than the drop recorded in September. That month, gas prices decreased by 10 per cent year-on-year.
Beyond the gas pump, Canadians saw a 2.7 per cent rise in food costs from October 2023, according to Statistics Canada, outpacing September’s 2.4 per cent increase and was the third consecutive month of higher increases than the overall inflation rate.
The recorded increase to inflation was expected, with the Bank of Canada estimating a rate of two per cent for October.
The news comes as Canada’s inflation has cooled off in the last five months, after recording a nearly nine per cent inflation rate in 2022 and hovering since then. The Bank of Canada has responded to the drop in the last five months with swift cuts to its benchmark interest rate. That rate now sits at 3.75 per cent.
“The leading driver of inflation remains shelter, but the good news in this [inflation] report is that shelter inflation is beginning to decline,” said James McNeil, an economics professor at Dalhousie University, in an emailed statement to On The Record.
He added that while inflation increased from 1.6 per cent in September to two per cent in October, the Bank of Canada wants to see two per cent inflation. The Bank of Canada’s official mandate says that it targets two per cent inflation.
The inflation reading has analysts anticipating the central bank may readjust its rate-cut strategy. “This heavy report should take more steam out of the call for another 50 basis-point rate cut from the Bank of Canada in December. We have been [predicting] a 25 basis-point cut from the start and this report only reinforces that expectation,” said Doug Porter, the Bank of Montreal’s chief economist, in an investor note.
However, some experts, like McNeil, say they are skeptical that the inflation report will have any sizable sway on the Bank of Canada.
“I don’t expect this report will have much of an effect on the Bank of Canada. Monetary policy usually has its largest effect after a delay of several months or even years, so central banks try to look past month-to-month fluctuations in inflation,” he wrote.
Some analysts were concerned about the core inflation rate, which is different from the headline rate. The headline rate takes the average of price gains of all products and services tracked by the government, whereas the core inflation excludes volatile items like vegetables and fuel, according to the Bank of Canada.
“Core inflation moved from just above the Bank of Canada’s target, at 2.1 per cent, to 2.8 per cent. That was a big move and points to core inflation remaining above the Bank of Canada’s target in the coming months,” wrote James Orlando, a senior economist at TD, in a note to clients.
Orlando says high inflation in categories like shelter and health care would persist for the foreseeable future.
Shelter prices grew at a slower pace of 4.8 per cent in October, however, and mortgage interest cost increases eased to 14.7 per cent from the year before, down from August 2023’s high of 30.9 per cent growth.
McNeil also cautions that a headline rate at the Bank of Canada’s target doesn’t mean the country is more affordable for Canadians. “While low and stable [headline] inflation is welcome news, we shouldn’t interpret this as a signal that the cost of living has significantly improved,” he wrote.
Statistics Canada said in the inflation report that all 10 provinces recorded higher inflation compared to September.
