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October CPI comes in at 3.1%, securing holiday rate hold

October inflation update

It’s another win in the Bank of Canada’s inflation battle – the October data are in line with economists’ expectations, offering firm reassurance that the central bank’s monetary policy measures have been enough to tame the consumer price index.

The headline inflation number marked 3.1% year-over-year growth, reports Statistics Canada, following September’s 3.8% measure. That’s the biggest annual decline recorded since June, largely influenced by softening gasoline prices, which dropped -7.8%. That also helped pull down the Core inflation measure – which is closely watched by the BoC – to 3.6%, from 3.7% in September. On a monthly basis, inflation rose by 0.1%.

Other metrics monitored by the bank, such as the median and trim measures, were up 3.6% and 3.5% from last year, but actually slowed to 2.7% and 3.2% on a three-month annualized basis – progress the central bank will be keen to see.

“Importantly, most of the major core measures are now within or very close to the Bank of Canada's 1%-to-3% comfort zone—at least over the past few months,” writes Doug Porter, BMO’s Chief Economist and Managing Director of Economics.

Rising rent and mortgage interest major factors behind inflation growth

However, there are a number of stubbornly sticky items remaining in StatCan’s basket of goods. The largest contributors to the year-over-year CPI increase continued to be mortgage interest costs, food purchased from stores, and rent.

Mortgage interest, in particular, has soared in response to the Bank’s 10-part hiking cycle, with the overnight lending rate in Canada sitting 4.75% higher than it did at the start of 2022. That’s resulted in a 30.5% year-over-year increase in what borrowers are paying monthly to service their mortgage loans.

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Rents, meanwhile, rose by 1.4% from September which Porter points out is the largest monthly rise since 1983 and up 8.2% annually. StatCan’s overall shelter index rose by 6.1%. 

Grocery costs, while still uncomfortably high, continued “their trend of slower year-over-year growth,” dropping for the third month in a row, at 5.4% compared to 5.8% in September, states StatCan.

Service prices, meanwhile, are also continuing to put pressure on the CPI, rising 4.6% on a year-over-year basis following a 3.9% increase in September.

Strengthening the case for a December rate hold

From a big picture perspective, though, the softening inflation and core numbers will further buttress reasoning for the Bank of Canada to hold the benchmark rate for a third consecutive time in its upcoming announcement on December 6.

“While no one expected inflation to go quietly into the night, this is a generally good news step in the right direction,” writes Porter. “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.”

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Penelope Graham, Director 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.