Canadian CPI cools to 2.2% in October – but won’t derail Bank of Canada rate hold
Penelope Graham, Head of Content
Canadian price growth cooled somewhat in October – a welcome development for consumers, but not enough to dissuade the Bank of Canada from its current rate-hold stance.
According to Statistics Canada, the Consumer Price Index rose 2.2% year over year in October, down slightly from the 2.4% increase recorded in September. On a monthly basis, the measure rose 0.7%.
While a decrease in the headline CPI number brings it closer to the 2% target mandated by the Bank, the October numbers were still higher than the 2.1% predicted by economists. It was also largely due to a slowdown in gas prices, which dropped by 9.4%, compared to 4.1% the month before. According to StatCan, removing gas from the equation would result in the CPI coming in at 2.6%. Inflation was also skewed lower by the elimination of the federal consumer carbon tax in April – that shaved an additional 0.6 percentage points off, according to an analysis by Desjardins.
Grocery prices fall slightly
A decrease in grocery price growth also contributed to slower inflation, though food prices remain elevated overall, and outpacing the overall inflation number for the ninth month in a row. Year-over-year price growth fell to 3.4% in October, down from 4% in September, marking a 0.6% month;y drop – the largest seen since September 2020.
According to Desjardins, this may be partly due to the federal government walking back tariffs on imported food from the US.
Insurance and cell phone service costs on the rise
Despite the slowdown in key gas and food categories, prices rose considerably for other goods and services. This includes cellular services, which increased for the first time since April 2023, up 7.7%, as several wireless providers jacked their prices.
Insurance premiums also rose for home and auto insurance; homeowner's home and mortgage insurance rose by 6.8%, while passenger vehicle premiums increased by 7.3%. These are two categories where prices have steadily marched higher; up 38.9% and 18.9% since October 2020, respectively.
Mortgage borrowers continue to pay less in interest
However, dropping interest rates continue to reduce what homeowners are paying monthly to service their home loans; mortgage interest costs continue to decline steadily month over month, coming in at 2.9%. That’s down from 3.6% in September, and well below the 30% peak hit in late 2023. Rents, however, were on the rise again, coming in at 5.2% compared to 4.8% in September. Overall, shelter costs rose 2.5%.
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Core inflation cools slightly
In good news for the central bank, the core measures of inflation that it monitors both chilled slightly in October, indicating that overall price growth is sticking in line with their previous estimates. The CPI median – which measures the median price growth among items in the CPI basket - dropped to 2.9% from last month’s 3.1%, while the CPI trim – which removes the top and bottom 20% of growth – fell to 3% from 3.1%.
Setting the stage for a rate hold
With price growth looking largely stable, and the majority of inflation measures within the BoC’s 1 - 3% target, there’s little urgency for the Bank to add more stimulus to the economy with another rate cut in the near term.
As BMO Chief Economist Douglas Porter writes,”On the surface, this looks to be a mildly friendly report with headline and median inflation rates dipping. However, the sources of relief were well-known ahead of time, and the new news here is not great, driven by persistent strength in insurance costs and a snap higher in cell charges. Overall, this does little to change the BoC's view that underlying inflation remains close to 2-1/2%; but, if anything, most underlying metrics have been stuck a bit above that, or have just crept up there. In other words, this report is just another reason to believe the Bank is moving to the sidelines in December.”
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Penelope Graham, Head of Content
Penelope has over a decade of experience covering real estate, mortgage, and personal finance topics and her commentary on the housing market is featured on both national and local media outlets.