The annual rate of inflation in Canada held steady at 6.9 per cent in October amid dropping pressure on grocery prices, according to Statistics Canada.
October’s Consumer Price Index (CPI) reading matches that of September. Economists had been expecting the CPI to accelerate last month as gas prices rose in October.
Prices at the pump were 9.2 per cent higher in October than the month previous, the agency said, putting blame on a weaker Canadian dollar and cuts in production from OPEC+.
Statistics Canada said higher gas and mortgage costs were “moderated by slowing price growth for food.” Food prices were up 10.1 per cent in October, down slightly from the 10.3 per cent hike in September.
Prices for meat, fresh fruit and vegetables all saw some easing in price growth month-to-month.
But Statistics Canada noted that many staples saw major year-over-year hikes: the cost of dry or fresh pasta was up 44.8 per cent; margarine cost 40.4 per cent more; and soup was 18.4 per cent more expensive.
BMO Chief Economist Doug Porter said in a note to clients that the modest relief in food prices could be a “step in the right direction,” but added “risks remain on that front.”
A lettuce shortage, for instance, has led to price spikes and for some restaurants to take leafy greens off the menu. Statistics Canada said lettuce prices rose more than 30 per cent last month.
- Cost of food purchased from restaurants — up 7.0 per cent
- Costs for passenger vehicles — down 8.1 per cent
- Registration fees for passenger vehicles — down 28.6 per cent
- Digital media purchase prices — down 14.9 per cent
- Computing and equipment prices — down 9.1 per cent
- Household paper supply (tissue, toilet paper) prices — down 9.7 per cent
Average hourly wages rose 5.6 per cent in October, again failing to keep pace with inflation but closing the gap seen in September.
What does this mean for interest rates?
Homeowners are also feeling the pinch of higher interest rates as the Bank of Canada raises the cost of borrowing in an effort to beat inflation.
Mortgage interest costs grew 11.4 per cent year-over-year, marking the biggest increase since February 1991, Statistics Canada said.
Two of the Bank of Canada’s three preferred measures of core inflation, which tend to downplay volatile inputs like food and energy, also ticked up slightly in October.
Bank of Canada Governor Tiff Macklem said in a speech last week that the institution would be watching its core inflation measures closely to determine how high interest rates will need to continue to rise before reaching the end of its tightening cycle.
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An analysis from RBC Economist Claire Fan shows the breadth of Canada’s inflation problem might be narrowing.
She pointed out in a note Wednesday morning that, over the past three months, some 58 per cent of the CPI basket was seeing prices rise at a rate above the Bank of Canada’s one-to-three per cent target. That’s down from the peak of 78 per cent seen in July, she noted.
“Make no mistake, current inflation pressure are still too high and too broad for the Bank of Canada’s liking,” Fan wrote.
“But early signs of easing price pressures will give the BoC some confidence that interest rates are near levels that are restrictive enough to ensure inflation return back to target over time.”
RBC is pencilling in a 25-basis-point interest rate hike at the next decision, which would bring the central bank’s policy rate to an even four per cent.
Porter said that since October’s headline reading comes in below the Bank of Canada’s forecast for the fourth quarter — it called for an average of 7.1 per cent for the final three months of the year — debate between a quarter or a half percentage point increase is still “very much alive.”
He noted that BMO’s official call of 50 basis points is “under review,” but maintained that interest rates will need to end up past the four per cent mark “to crack underlying inflation” as core measures remain stubbornly high.
Money markets are betting on a 25-basis-point increase at the Bank of Canada’s final rate decision of the year on Dec. 7, with a roughly 35 per cent chance of a larger move, according to Reuters.
— With files from Reuters
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