Canada inflation rate slowed to 3.1% in October. Here’s what happens next

What’s next: Bank of Canada interest rate decision, retail sales data

Statistics Canada will release its next inflation report on Dec. 19, reflecting consumer prices in November.

About two weeks before then, the Bank of Canada will make its final interest-rate decision of the year on Dec. 6. While economists and financial markets have moved toward speculating on when the central bank will start to cut interest rates, BoC officials have continued to say they’re prepared to raise rates if needed.

Earlier this month, the central bank published a summary of its deliberations for the Oct. 25 rate decision, which held the policy rate at 5 per cent. Bank of Canada officials were split on the need for more interest-rate hikes, noting that inflationary risks had increased.

“In conjunction with data showing slack building within the labour market and growth data suggesting the economy is in a shallow recession, today’s constructive inflation report has completely undermined the BoC’s hawkish bias,” Simon Harvey, head of FX analysis at Monex Europe and Canada, said in a research note.

On Friday, Statscan will publish a report on retail sales for September, which could provide further evidence of Canadians pulling back on spending as they cope with higher interest rates.

— Matt Lundy

10:50 A.M.

A big jump in property taxes and new trends in rent inflation

Housing-related costs were once again one of the largest contributors to inflation in October. But the latest CPI report shows a couple of trends that have arguably gone under the radar.

First, Canadians paid a lot more in property taxes this year. Nationally, the increase was 4.9 per cent compared to year-ago levels. It was the largest since 1992, according to Statistics Canada, which tallies these charges annually in October.

Homeowners have been paying more in all provinces but Manitoba, which saw a slight decrease (-0.3 per cent) due mainly to a reduction in its education tax. British Columbia recorded the steepest increase (up 7.5 per cent compared to October 2022), which came on top of an 8.9 per cent jump the previous year.

Statscan attributed the increases to larger municipal budgets as cities face rising costs.

The second noteworthy trend is in the rent data. Tenants across the country continued to feel the pressure from soaring shelter costs, with rent inflation accelerating to an annual rate of 8.2 per cent in October, compared to 7.3 per cent in September.

But it was in places like Nova Scotia, Alberta and Quebec that tenants saw some of the steepest year-over-year increases. Rents were up nearly 15 per cent and 10 per cent, respectively, in Nova Scotia and Alberta compared to a year ago. Quebec – along with British Columbia, which continued to see persistent pressure on rents – saw a yearly increase of around 9 per cent.

Other recent rental surveys tell a similar story. “Rent inflation in Canada has become increasingly more concentrated within Alberta, Quebec, and Nova Scotia,” read a recent national report prepared by Rentals.ca, a rental listings site, and Urbanation, a real estate research firm. Driving the increases in those provinces was a combination of strong population growth and the addition of new rental units priced at above-average market rents, according to the analysis.

10:30 A.M.

David Parkinson: Inflation is falling – but is that enough?

Everyone expected the inflation rate for October would be down. The key question is whether it’s down enough, and in the right ways, to alter the path for interest rates.

Looking at the details of the numbers, this report probably cements the case that the Bank of Canada is done with rate hikes, barring a major reversal in direction. It will also keep the financial markets talking about rate cuts beginning by the middle of next year, if not sooner. But it isn’t sufficient for the central bank itself to start talking about cuts.

The biggest concern for the central bank has been the stubborn stickiness of “core” inflation – the bank’s measures of broad, underlying inflation pressures. Well, those sticky core numbers have come unstuck.

The bank’s CPI-median measure dipped to 3.6 per cent year over year from 3.9 per cent in September, while the CPI-trim gauge fell to 3.5 per cent from 3.7 per cent. They’re now down about a half of a percentage point in two months and are at their lowest levels since late 2021.

David Parkinson: Interest rates aren’t going back to their pre-COVID lows. Good

The core measures – which filter out short-term price swings in a few items that can distort the overall inflation reading – spent months through spring and summer barely moving, even as the total inflation number fell. For the central bank, that suggested a lingering and persistent inflation problem beneath the surface. The bank has identified “downward momentum in core inflation” as its key focus in determining whether interest rates are high enough to tame inflation.

Two months is a short trend, but it’s been a pretty sharp downward turn in that time. This has entered “downward momentum” territory. It needs to be sustained for longer to remove rate hikes entirely from the picture, but this does push them pretty far into the margins.

There are other positive signs.

Year-over-year price growth slowed in six of the eight component groups of the Consumer Price Index (CPI) – an indication that the easing of inflation is broadly based. (One of the two components that increased – shelter – has been pushed upward by the bank’s own rate policy, the price to pay for using higher rates to quash broader inflation momentum.)

The food component – one of the most painful aspects of the inflation surge of the past couple of years – actually fell for the third straight month, on a non-seasonally adjusted basis.

The Bank of Canada will be much less excited to see that inflation in the services side of the economy – another nagging concern – turned upward in October (4.6 per cent year over year, versus 3.9 per cent in September). That’s far too high, heading in the wrong direction (obviously) and remains the major source of continued inflation pressure. (Goods inflation, by comparison, was a tame 1.6 per cent last month.) Services inflation will need to go into sustained decline before the bank will feel comfortable starting a conversation about rate cuts.

– Columnist David Parkinson

10:10 A.M.

Inflation highlights: Housing, mortgage interest rates, food prices

Here are some notable details from Tuesday’s report.

• Housing: Once again, housing is playing a major role in keeping inflation at unsuitably high levels. Shelter costs for renters and homeowners rose at an annual pace of 6.1 per cent in October, up slightly from 6 per cent in September.
• Mortgages: Mortgage interest payments jumped 30.5 per cent in October from a year earlier, given that many homeowners are contending with much higher interest rates.
• Core inflation: Short-term measures of core inflation, which strip out volatile aspects of inflation, are cooling off. Excluding food and energy, the CPI rose at a three-month annualized rate of 3.3 per cent in October, down from 3.6 per cent in September.
• Cell services: Prices for cellular services plunged 18.6 per cent over the past year, part of a recent downward trend for smartphone plans.
• Food prices: As always, food is a mixed bag of results. Prices for fresh milk and eggs rose 1.6 per cent and 1.9 per cent, respectively over the year to October, a slower pace than in September. However, price increases accelerated for various items, including fresh fruit, sugar and soup.

– Matt Lundy

9:35 A.M.

How economists reacted to Tuesday’s report

Royce Mendes, head of macro strategy at Desjardins Securities: “This is exactly the type of progress that central bank officials have been waiting to see. If the door wasn’t already shut to additional rate hikes, it now should be. The market hasn’t moved much on the numbers, with yields lower before the data were released. However, looking at the core readings, we believe there’s more progress than initially meets the eye in the headline numbers.”

Leslie Preston, senior economist at Toronto-Dominion Bank: “There is little doubt that Canada’s economy has cooled in recent months, but the chill in inflation that should follow is proving slow to show up. We expect weaker demand in the economy will ultimately dampen price pressures, but given tightness in the labour market, it will take time.”

Doug Porter, chief economist at Bank of Montreal: “Overall, today’s result drives home the point that there is no need for further BoC tightening, especially with the economy already struggling to grow at all and underlying inflation calming. However, before the bank can even begin seriously considering rate relief, we’ll need to see more evidence that services inflation is also moderating — that could be at least another six months down the road.”

– Matt Lundy

9:15 A.M.

Subdued market reaction to October inflation data

Market reaction has been relatively subdued to today’s CPI data, reflecting the fact the headline number came in close to expectations and there’s little in the report to shake up views of where monetary policy is heading. Some core readings of inflation came in slightly lighter than the Street consensus but nothing that would spark a lot of repositioning in money markets.

The Canadian dollar barely budged, keeping within the North American morning trading range of between 72.78 cents US and and 73 cents US, not much change on the day. It’s a similar case in bonds. The Canada two-year bond yield, which is particularly sensitive to Bank of Canada monetary policy moves, is up about 3 basis points but well within the day’s trading ranges. The Canada five-year is up about 5 basis points. Those moves in yields had a little more upward momentum than their U.S. counterparts, which suggests markets don’t view the inflation numbers as particularly dovish.

How markets and economists are reacting to today’s inflation data

Given this, it’s not particularly surprising to see that implied interest rate probabilities in swaps markets aren’t budging much either. Traders there are pricing in at least a 25 basis point cut in the Bank of Canada’s overnight rate by June of next year. By December of next year, money markets are pricing in 75 basis points of cuts.

This has been the most subtle reaction to Canada inflation data that we’ve seen in many months, and markets are signalling that traders don’t see any changes in the Bank of Canada overnight rate for at least the next few meetings. And they are pricing in little risk of any further hikes.

– Darcy Keith

9:05 A.M.

Inflation by province

8:55 A.M.

The new inflation numbers

Canada’s annual inflation rate fell to 3.1 per cent in October from 3.8 per cent in September, Statistics Canada said Tuesday in a report.

The result matched financial analysts’ expectations and was largely driven by gasoline prices, which fell 6.4 per cent on a month-over-month basis. Excluding gas, the Consumer Price Index rose 3.6 per cent in October, compared to a 3.7-per-cent increase in September.

Despite the progress, there was pressure elsewhere. Services inflation accelerated to an annual pace of 4.6 per cent in October, following a 3.9-per-cent increase in September. This was largely driven by higher prices for travel tours, rents and property taxes, the agency noted.

Rents jumped by 8.2 per cent last month, a reflection of fervent demand for housing and a chronic lack of supply across the country. The federal government has signalled that it will unveil more funding to build affordable housing units in Tuesday’s fall economic statement, as it faces pressure to address various affordability concerns.

The Bank of Canada has flagged services inflation as one of the challenging areas in wrestling inflation back to the central bank’s 2-per-cent target. The BoC will make its next interest-rate decision on Dec. 6, and is widely anticipated to hold its policy rate at 5 per cent.

Groceries are continuing to see a slowdown in price increases. Those costs rose at an annual rate of 5.4 per cent in October, down from 5.8 per cent the previous month. Grocery inflation peaked at more than 11 per cent.

– Matt Lundy

8:47 A.M.

Gasoline prices dragging Canada’s annual inflation rate

Dragging the annual inflation rate in October was a 7.8 per cent drop in gasoline prices, which benefited from comparison with a price surge in October 2022. Grocery prices also cooled down to its slowest pace since November 2021.

Excluding volatile food and energy, prices rose 3.4 per cent compared with a 3.2 per cent rise in September.

While goods inflation slowed to 1.6 per cent in October, services prices accelerated 4.6 per cent, fastest pace since May.

The Canadian dollar was trading 0.2 per cent higher at 1.37 to the greenback, or 72.99 U.S. cents, after the data.

– Reuters

8:34 A.M.

Deceleration could fortify bets that BoC will cut interest rates in 2024

The deceleration in headline inflation could fortify investor bets that the Bank of Canada will start lowering its key policy rate from a 22-year high of 5 per cent in the first half of 2024.

The BoC’s core measures of underlying inflation edged lower, with CPI-median dropping to 3.6 per cent and CPI-trim to 3.5 per cent, the lowest since December 2021 and November 2021, respectively.

– Reuters

8:31 A.M.

Canada’s inflation rate fell to 3.1 per cent in October

Canada’s annual inflation rate fell to 3.1 per cent in October from 3.8 per cent in September, Statistics Canada said Tuesday in a report.

The result matched financial analysts’ expectations and was largely driven by gasoline prices, which fell 6.4 per cent on a month-over-month basis. Excluding gas, the Consumer Price Index rose 3.6 per cent in October, compared to a 3.7-per-cent increase in September.

– Matt Lundy

8:20 a.m.

Calculate your personal inflation rate

What is your personal rate of inflation? It’s probably different than the rate that gets reported by Statistics Canada every month.

The Consumer Price Index comprises hundreds of goods and services that people buy – everything from eggs and electricity to car rentals and cannabis. But this leads to inflation figures that, while informative, aren’t reflective of your circumstances. You probably don’t buy everything on that long list of goods and services – let alone in the same proportions.

That’s why The Globe and Mail created this personal inflation calculator, distilling CPI data from April, 2023, to a handful of key categories. Punch in your monthly expenses and the tool will calculate the annual change in consumer prices, based on your budget.

– Globe staff

7:45 a.m.

Freeland to release fall economic statement aimed at affordability concerns amid persistently high inflation

The federal government will announce several housing-related measures in a slimmed down fall economic statement aimed at responding to affordability concerns. Finance Minister Chrystia Freeland will release the economic statement Tuesday afternoon, which will take into account key changes that have occurred since the federal budget in March.

These include a spike in long-term borrowing costs and a significant slowdown in economic growth – two sides of the same coin that are squeezing federal finances and limiting the government’s room for manoeuvre amid persistently high inflation.

– Bill Curry and Mark Rendell

7:30 a.m.

Minimize inflation in your grocery bill with our calculator

Is your weekly grocery bill looking a lot higher lately? You can probably blame food inflation for the changes you’ve seen at the supermarket.

If you’re looking for more ways to shield your grocery cart from inflation, this calculator will help you spot ways to bring down costs.

– Globe staff

6:00 a.m.

October inflation report to be released today

Inflation is expected to take a big step back on Tuesday, when Statistics Canada releases the latest numbers on consumer price growth. Analysts expect the annual inflation rate subsided to 3.1 per cent in October, from 3.8 per cent in September.

The slowdown is widely anticipated because gasoline prices moderated last month. The national average retail price for regular unleaded gas was $1.58 a litre in October, down 7.4 per cent from the September average, according to data from Kalibrate Technologies. Those prices have fallen slightly more in November to date, foreshadowing another potential drop in overall inflation.

Despite the progress, the Bank of Canada doesn’t project inflation will return to its 2-per-cent target until mid-2025. The central bank expects inflation to stay around 3.5 per cent until the middle of next year, and BoC officials have warned that further increases to its policy rate – now at 5 per cent – could be necessary to subdue price growth.

Still, the consensus view on Bay Street is that interest rates have peaked and the Bank of Canada will start cutting rates next year. The economy has ground to a halt in recent months as consumers pull back on discretionary purchases, which should help to bring inflation under control.

Last week, the U.S. reported that its annual inflation rate fell to 3.2 per cent in October from 3.7 per cent, sparking a rally for equities and fuelling speculation that the Federal Reserve was done with its rate-hiking campaign.

Interest-rate swaps, which capture market expectations about monetary policy, are pricing in two 25-basis-point rate cuts from both the Fed and Bank of Canada by September, 2024. (A basis point is 1/100th of a percentage point.)

Two areas of interest in Tuesday’s inflation report are housing and food costs. Mortgage interest payments and rents are some of the biggest contributors to lofty inflation and reflect how Canada’s housing crisis is affecting the numbers. Grocery inflation has decelerated from peak levels but is still uncomfortably high, rising 5.8 per cent in September from a year earlier.

– Matt Lundy