Canada’s inflation rate jumps back up to 2% in October

11 a.m.

What’s next?

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– Matt Lundy

The Bank of Canada will have plenty of additional data to chew on before its next rate decision on Dec. 11.

Statscan will publish gross domestic product figures for the third quarter on Nov. 29 and the Labour Force Survey the following week. Economic growth has been middling the past two years, although Statscan recently made upward revisions to GDP, much like those seen in the United States.

Hiring has also been tepid for many months, lagging the historic pace of population growth.

The Bank of Canada has expressly stated that it wants to see economic activity and hiring pick up, so these releases could prove influential in the December rate decision.

10:21 a.m.

Here’s a list of October inflation rates for selected Canadian cities

– The Canadian Press

Canada’s annual inflation rate was two per cent in October, Statistics Canada says. The agency also released rates for major cities, but cautioned that figures may have fluctuated widely because they are based on small statistical samples (previous month in brackets):

• St. John’s, N.L.: 1.3 per cent (1.1)
• Charlottetown-Summerside: 1.7 per cent (1.4)
• Halifax: 1.8 per cent (1.2)
• Saint John, N.B.: 1.8 per cent (0.8)
• Quebec City: 1.4 per cent (1.2)
• Montreal: 2.0 per cent (1.8)
• Ottawa: 2.1 per cent (2.4)
• Toronto: 2.3 per cent (2.4)
• Thunder Bay, Ont.: 2.1 per cent (2.3)
• Winnipeg: 1.3 per cent (0.9)
• Regina: 2.0 per cent (0.8)
• Saskatoon: 1.7 per cent (0.8)
• Edmonton: 2.9 per cent (1.8)
• Calgary: 3.3 per cent (2.1)
• Vancouver: 2.2 per cent (1.7)
• Victoria: 2.0 per cent (1.9)
• Whitehorse: 2.2 per cent (1.8)
• Yellowknife: 2.4 per cent (1.2)
• Iqaluit: 1.5 per cent (1.5)

10:15 a.m.

Pain in the grocery aisle, once again

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– Erica Alini

Grocery prices are once again rising faster than overall inflation, and a weak Canadian dollar might make matters worse over the following months.

The price of food bought in stores was up 2.7 per cent in October compared with the same month a year ago, outstripping the growth recorded by the Consumer Price Index, or CPI, which rose by 2 per cent. It was the third consecutive reading since August showing grocery price growth surpassing the average.

Supermarket aisles were one of the corners of the economy where prices took the longest to come off the inflation highs triggered by the pandemic. For over two years – from late 2021 to early this year – grocery prices registered year-over-year increases that surpassed the overall average. Then finally, to the relief of grocery shoppers across the country, that trend reversed in February of 2024, with food prices rising more slowly than inflation.

But that brief reprieve ended late this summer, and Canadians might be in for heftier price hikes still later this year and into 2025 as the loonie hits fresh lows against the U.S. dollar.

The upward pressure on grocery bills is likely to come from produce, according to Michael von Massow, a professor in the department of food, agricultural and resource economics at the University of Guelph.

It’s normal to see the prices of fresh fruit and vegetables generally creep up in Canada as the weather turns cold and the country steps up imports to keep shelves stocked. But a depreciating dollar could make those seasonal price hikes slightly steeper, Prof. von Massow said.

That’s not just because produce buyers will be sourcing from places such as California and, later in the season, Arizona, Louisiana and then Florida. They will also be competing with U.S. food importers in Central and South America using U.S. dollars, he added.

With the loonie currently trading near a four-year low of 71 US cents, importers and retailers will pass any extra costs from a weak exchange rate on to consumers.

Still, there’s a small silver lining. Any price increases in the produce section are unlikely to affect the main staples of a traditional Christmas dinner, Prof. von Massow said.

Turkey, ham and cranberries are largely produced locally, he said. So are potatoes and other root vegetables.

Adding a salad or other leafy greens to the menu, though, might cost you a bit more, he said.

10:05 a.m.

Here’s a list of October inflation rates for Canadian provinces

– The Canadian Press

Canada’s annual inflation rate was two per cent in October, Statistics Canada says. Here’s what happened in the provinces (previous month in brackets):

• Newfoundland and Labrador: 1.1 per cent (0.7)
• Prince Edward Island: 1.3 per cent (1.0)
• Nova Scotia: 1.5 per cent (0.9)
• New Brunswick: 1.8 per cent (0.9)
• Quebec: 1.6 per cent (1.3)
• Ontario: 2.0 per cent (1.9)
• Manitoba: 1.1 per cent (0.8)
• Saskatchewan: 1.6 per cent (0.7)
• Alberta: 3.0 per cent (1.9)
• British Columbia: 2.4 per cent (2.0)

10:01 a.m.

Sticky core inflation could prompt the BoC to shift back to smaller cuts

– Mark Rendell

The Bank of Canada said last month that it expects inflation to fluctuate around the 2-per-cent target, so the uptick in October is unlikely to knock the central bank off its rate-cutting path. It could, however, convince the bank to slow the pace of monetary policy easing, and shift back to a quarter-point cut at the next rate decision on Dec. 11 after delivering a half-point cut in October.

The central bank is unlikely to be concerned by the rise in headline consumer price index inflation to 2 per cent from 1.6 per cent, which was driven by less flattering year-over-year gas price comparisons and a jump in property taxes. But it won’t look favourably on the rise in its two favourite measures of core inflation, which rose to an average of 2.55 per cent from 2.35 per cent, suggesting inflation is a little more sticky than previously thought.

Bank of Canada Governor Tiff Macklem came close to declaring victory over inflation last month, and said that more interest rate cuts likely are on the way. There’s little in the latest inflation numbers to fundamentally challenge that narrative: Inflation has come down dramatically over the past two years, economic growth is sluggish, and the policy interest rate, at 3.75 per cent, is too high for this point in the economic cycle.

The main question is about the size and pace of cuts, and here each piece of incoming data matters greatly. Financial markets responded to the latest CPI numbers by dialling back bets on a half-point cut in December. Swap markets now put the odds of a half-point cut at just under 30 per cent, down from around 40 per cent before the latest data.

The Bank of Canada has clearly signalled that it intends to keep moving interest rates lower to get borrowing costs back to a more neutral level that supports consumer spending and business investment. Indeed policy makers have spent more time in recent months flagging concern about weak economic growth and a rising unemployment than about upside risks to inflation.

That suggests that GDP and jobs numbers could take the front seat when it comes to deliberations about additional rate cuts. But at the end of the day, the Bank of Canada is an inflation-targeting central bank, and sticky core inflation numbers can’t be ignored.

9:56 a.m.

How economists are reacting to the October inflation report

– Darcy Keith

Here’s how economists are reacting in written commentaries this morning:

Royce Mendes, managing director and head of macro strategy, Desjardins Securites

As a result of the upside surprise, which suggests a tad more stickiness in inflation than expected, we have more conviction in our call that the Bank of Canada will cut rates just 25 basis points in December. We expect market participants and economists who had been expecting a second consecutive 50 basis point move to migrate to the quarter-point camp.

Douglas Porter, chief economist, BMO Capital Markets

This heavy result should take some more steam out of the call for another 50 bp rate cut from the Bank of Canada in December. We have been in the 25 bp camp from the start and this report only reinforces that expectation, along with evidence that housing is stirring, the Fed will turn more cautious, and a limping loonie. There are still the important Q3 GDP (next Friday) and jobs reports (following Friday) ahead of the next rate decision on December 11, but we are expecting big upward revisions to GDP, suggesting we’ll need to see a truly tough jobs report to prompt another aggressive cut. At this point, most signs suggest the prudent course of action is a 25 bp rate cut path.

How market bets and economist views for future BoC rate cuts have shifted after today’s inflation data

James Orlando, director and senior economist, TD Economics

Today’s data reinforced the message that the Bank of Canda’s (BoC) goal of stabilizing inflation won’t be a smooth path. While the increase in headline inflation was expected, the move higher in core inflation was discouraging. Even worse, on a three-month basis, core inflation moved from just above the BoC’s target, at 2.1%, to 2.8%. That was a big move and points to core inflation remaining above the BoC’s target in the coming months. High inflation for shelter, food, and health care were behind this, and aren’t looking likely to go away any time soon.

The BoC is likely to view today’s data release as a minor setback. Inflation had become a background worry, and while it isn’t raising any red flags yet, today’s data is a reminder that getting price growth to settle at 2% will take time. … We think that a 25 bp cut remains the most likely outcome, especially given the resilience that the economy has demonstrated over the last few months.

Katherine Judge, senior economist, CIBC

The pace of inflation accelerated in Canada in October, but this follows a string of reports that showed more muted price pressures. The 0.4% m/m non-seasonally adjusted increase left annual inflation at the 2.0% target, with both of those figures being a tick above the consensus expectation. Higher property taxes were the main contributor to the monthly NSA change, which are updated in the index once a year with the release of the October data. Although the Bank of Canada’s key core metrics, CPI trim and median both accelerated by two ticks to 2.6% and 2.5% y/y, respectively (vs. 2.4% expected for both), some other key exclusionary measures still show very tame prices, with CPIX at 1.7% and CPI ex. shelter at 0.9% y/y. Given that this report follows a string of better news on inflation, and the fact that the GDP and employment data remain to be seen ahead of the December BoC decision, we still see a 50bp cut as possible at the next BoC meeting.

9:48 a.m.

Inflation highlights: Canadians see property taxes rise, shelter prices ease

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– Matt Lundy

Here are some highlights from Tuesday’s report:

• In some respects, the inflation situation is heating up a bit. The Bank of Canada’s preferred measures of core inflation, which strip out volatile movements in the CPI, rose at an average annual rate of 2.55 per cent in October, up from 2.35 per cent in September. On a three-month annualized basis, the CPI excluding food and energy rose 1.9 per cent in October, up from 1.6 per cent the previous month.
• Property taxes rose 6 per cent, year over year, the most since 1992. Statscan updates its numbers on property taxes once annually in the October CPI report. This update showed the largest increases were found in Newfoundland (9.7 per cent) and British Columbia (8 per cent).
• Shelter inflation is easing. Those costs rose 4.8 per cent, year over year, down from 5 per cent in September. Mortgage interest costs peaked at annual increases of more than 30 per cent, but now that the Bank of Canada is cutting interest rates, those costs are down to a 14.7-per-cent increase as of October.
• Rents are another area of progress. They rose 7.3 per cent on a year-over-year basis in October, down from 8.2 per cent in September. Even so, rents have climbed 25 per cent since the end of 2019, making it a big source of financial strain for millions of Canadians.

9:23 a.m.

Markets slash odds of jumbo Bank of Canada interest-rate cut in December

– Darcy Keith

The modestly higher-than-expected inflation reading for October was enough for money markets to price in higher odds that the Bank of Canada will cut interest rates by only 25 basis points next month.

Implied probabilities in swaps markets now suggest a 71 per cent chance of a 25-basis-point cut on Dec. 11, and a 29 per cent chance that the bank will follow up with another jumbo 50-point cut, according to LSEG data.

Just prior to the inflation data, markets were pricing in 61 per cent odds of the 25-point cut.

Markets earlier this month, following a weaker-than-expected Canadian jobs report and an interest rate cut by the U.S. Federal Reserve, were signalling there was a greater probability the Bank of Canada would pull the trigger on another 50-point cut come December rather than just a quarter-point.

But that more dovish interpretation of likely future monetary policy moves didn’t last long, and by last week markets were back to pricing in better odds it would be 25 basis points.

Money markets are now pricing in one full percentage point of more easing by the Bank of Canada by December, 2025. That indicates there will be less interest rate relief coming in the months ahead than what had been expected. Earlier this fall, markets were pricing in 150 basis points of more cuts to come by the end of next year.

Canadian dollar trading is reflecting the lower odds of a supersized Bank of Canada cut in December. The currency rose about 0.15 of a cent on the data, to 71.45 cents U.S. There’s some upward pressure on bond yields as well, with the Canada two-year at 3.162 per cent. That’s nearly flat on the day, but with the U.S. equivalent yield currently down by five basis points, traders are positioning for more modest central bank easing ahead.

9:15 a.m.

Opinion: Despite October’s increase, inflation has been tamed

– Rob Carrick

Getting inflation under control might be the most joyless victory in Canada’s economic history.

Even though the 2 per cent year-over-year rise in the cost of living in October was a bit higher than September’s 1.6 per cent, inflation has been tamed. Two per cent is pretty much where the Bank of Canada wants inflation – not too hot and not too cold.

Some theories on why no one is celebrating the decline in inflation from the peak 8.1 per cent rate of June 2022:

• Changes in the economy, including big moves in interest rates, take months and even a year or more to alter behaviour and perceptions. We’ve only had a few consecutive months of inflation at or below 2 per cent.
• Past inflation is baked in: Lower inflation means a slower pace of price increases, not a rollback of past increases.
• The food problem: The price of food bought at grocery stores increased 2.7 per cent year-over-year in October, the third straight month where growth in grocery prices exceeded the headline inflation rate. Buy fresh vegetables much? Prices were up 7.3 per cent. Beef inflation was 7 per cent, down from 9.2 per cent in September.
• The shelter problem: Mortgage interest costs are the main culprit here – they rose 14.7 per cent year over year, down mildly from 16.7 per cent in September. Rents increased 7.3 per cent, bringing the cumulative rent increase since October, 202, to 21.6 per cent.

Statistics Canada’s overall inflation rate is meant to represent what’s happening to the cost of a broad basket of goods and services. But for many people, food and mortgage costs or rent play an outsize role in shaping their feelings about the cost of living. It’s particularly hard to buy into the idea of mild inflation when the cost of buying food keeps edging higher.

Unhappiness over inflation is a powerful force – we saw that in the recent U.S. election. The outcome of the next Canadian election may well hinge on attentiveness to the anger people feel about what inflation has done to their finances. Pointing out that inflation has fallen to a nice, tame 2 per cent won’t likely do the job.

8:55 a.m.

The new inflation numbers

– Matt Lundy

Canada’s inflation rate perked up last month, although the move higher was anticipated by financial analysts.

The Consumer Price Index rose 2 per cent in October on an annual basis, rising from 1.6 per cent in September, Statistics Canada said Tuesday in a report. Analysts were expecting an upturn to 1.9 per cent.

On a monthly basis, the CPI rose 0.4 per cent in October.

The results were influenced by less favourable base effects for gasoline: A sizable drop in gas prices last October was no longer part of the year-over-year calculation.

Excluding gas, the CPI rose by an annual 2.2 per cent in October, matching the increase in August and September.

While inflation picked up steam last month, economists don’t think this is the start of a distressing trend. The Bank of Canada has already heralded the return of 2-per-cent inflation — the central bank’s target rate – and has expressed concerns that CPI growth could undershoot the target.

The Canadian economy has shown lacklustre growth for much of the past two years, and the unemployment rate has risen by nearly two percentage points from a record low.

The Bank of Canada is firmly entrenched in a cycle of monetary policy easing, which has seen the benchmark interest rate fall to 3.75 per cent from 5 per cent. The question for December’s rate decision is not whether they’ll cut, but by how much.

8:30 a.m.

Canada’s inflation rate hits 2% in October: Statscan

– Matt Lundy

Canada’s annual inflation rate hit 2 per cent in October, rising from 1.6 per cent the previous month. The median estimate from financial analysts was 1.9 per cent, although many had predicted an upturn to 2 per cent.

7:45 a.m.

Trump trade and BoC-Fed divergence weakens loonie, potentially adding to import prices

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– Mark Rendell

The loonie has been losing ground against the U.S. dollar for much of the year, as Canada’s economy has underperformed America’s and the Bank of Canada has cut interest rates more than the U.S. Federal Reserve.

The election of Donald Trump, on a platform that could juice U.S. economic growth and add to inflation, has further supercharged the greenback. The loonie is trading near a four-year low of 71 US cents, down from around 74 US cents in late summer.

A depreciating Canadian dollar should push up the price of U.S. imports, although the pass-through into overall inflation is likely to be relatively limited. A Bank of Canada paper from 2015 estimated that a 10-per-cent depreciation in the Canadian dollar increases core inflation by around 0.3 percentage points and total consumer price index inflation by 0.6 percentage points. More recent internal estimates are in the same ballpark, according to a BoC spokesperson.

One of the key determinants of nominal exchange rates is the gap between interest rates in two countries. With the Bank of Canada expected to cut interest rates more aggressively than the Fed in the coming quarters, analysts expect the loonie to slide further. Governor Tiff Macklem has said there’s a limit to how far the BoC can diverge from the Fed, but that we are not close to that limit.

Read more on the Canadian dollar’s four-year-low against the U.S. dollar.

7 a.m.

October inflation report to be released today

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– Matt Lundy

Canada’s inflation rate likely perked up in October, although not to distressing levels.

Financial analysts expect the annual inflation rate climbed to 1.9 per cent last month from 1.6 per cent in September. The results will be confirmed on Tuesday morning, when Statistics Canada publishes its latest Consumer Price Index report.

Inflation has been quite subdued in recent months, and the Bank of Canada has shared its concerns that CPI could settle below the bank’s 2-per-cent target without an upturn in economic activity. In an effort to boost the economy, the BoC cut its benchmark interest rate by half a percentage point in October, more than the usual quarter-point trims.

Since June, the central bank has cut its key interest rate four times, taking it to 3.75 per cent from 5 per cent.

Tuesday’s inflation report will be the final one before the Bank of Canada’s next rate decision on Dec. 11, and it could ultimately push the central bank to make another half-point cut or return to quarter-point moves. As of midday Monday, investors were pricing in a 42-per-cent chance that rates will decline by a half-point, according to Bloomberg data.

Gasoline prices rose slightly in October, putting upward pressure on CPI last month. Statscan also makes an annual adjustment to its reading of property taxes in October; last year, this update showed that property taxes rose 4.9 per cent on an annual basis, the most since 1992.

The Bank of Canada finds itself in a different position from the Federal Reserve. Last week, Fed chair Jerome Powell said the U.S. central bank was not in a rush to lower interest rates, given the persistence and strength of the American economy.

President-elect Donald Trump has floated several policies that, if implemented, are broadly seen as inflationary, such as universal tariffs on imported goods. In turn, this could limit the extent of Fed rate cuts. Investors are pricing in between two and three quarter-point cuts by the fall of 2025 – significantly less easing than they expected several weeks ago.

This is putting downward pressure on the Canadian dollar, which is trading just above 71 U.S. cents, the lowest levels since early in the pandemic.