Canada's Inflation Rate Increases in October

By Ismail Shakil

OTTAWA (Reuters) – Canada’s annual inflation rate accelerated more than expected to 2.0% in October as gas prices fell less than the previous month, data showed on Tuesday, shrinking market bets for a bigger rate cut next month.

Analysts polled by Reuters had forecast the inflation rate would speed up to 1.9% from 1.6% in September. In August, the annual rate was 2%.

On a monthly basis, the consumer price index rose by 0.4% after two consecutive monthly declines, Statistics Canada data showed. The monthly gain also beat market expectations of a 0.3% increase.

It was the first pick-up in the annual inflation rate since May. The central bank forecasts consumer price inflation to be 2.5% this year and 2.2% next year.

In October, Statistics Canada reported that a smaller 4% drop in gasoline prices compared to September’s 10.7% decrease led to the acceleration. Excluding gasoline, the inflation rate remained at 2.2% for the third straight month.

This was the last inflation data released ahead of the Bank of Canada's interest rate announcement on December 11, and currency markets now see around a 28% chance of a 50 basis point rate cut, down from 37% before the CPI data release.

The Canadian dollar firmed 0.19% after the data to 1.3989 to the U.S. dollar, or 71.48 U.S. cents. Yields for the government’s two-year bonds fell 2.1 basis points to 3.206%.

The bank has lowered its policy rate by 125 basis points over its last four policy-setting meetings, including a 50 bp cut in October, when Governor Tiff Macklem indicated that further easing could occur if the economy progressed as forecasted.

The bank's preferred measures of core inflation, CPI-median and CPI-trim, also edged up. CPI-median saw an increase to 2.5% from 2.3% in September, while CPI-trim, which excludes the most extreme price changes, rose to 2.6% from 2.4%.

Price increases of store-bought food also accelerated to 2.7% in October from 2.4% in September, with Statscan noting that this was the third consecutive month where grocery price rises outpaced headline inflation.

Services price inflation decelerated to 3.6%, the slowest annual pace since January 2022, while goods prices rose by 0.1% after a 1% decline in September.