Canada’s annual inflation rate slowed to 2.2% in October, supported by lower gasoline costs, easing food prices, and a decline in mortgage interest rates, according to data released on Monday.
The government’s removal of the carbon levy on gasoline earlier this year continued to pull annual price growth downward. Without this policy change, the consumer price index would have risen 2.7% in October, compared with 2.9% in September, Statistics Canada reported.
Economists surveyed by Reuters had expected inflation to ease to 2.1%, down from 2.4% in September, and projected a monthly increase of 0.2%.
On a monthly basis, CPI inflation matched expectations, confirming that price pressures are stabilizing.
The Bank of Canada has pointed to steady inflation as a key factor behind its recent pause in interest rate cuts. The softer October reading strengthens the case for holding the current 2.25% policy rate in place next month.
A sharper monthly decline in gasoline pushed the annual fuel price drop to 9.4% in October, compared with 4.1% the previous month.
Food Prices Up 3.4% in October
Food inflation also slowed, rising 3.4% in October after a 4.0% increase in September. However, food prices continue to run above overall inflation and have done so for nine straight months.
Mortgage interest costs, a major part of shelter inflation, rose 2.9% annually, marking the first time in more than three years that the rate has fallen below 3%. In contrast, rent inflation moved above 5%, accelerating for the second month in a row.
Given the volatility caused by tax changes and temporary price swings, the central bank pays close attention to core inflation indicators. The CPI-median eased to 2.9% from a revised 3.1%, while the CPI-trim measure slipped to 3.0%, down from 3.1% in September.
CIBC economist Andrew Grantham noted that the Bank of Canada would likely need a longer period of easing price pressures, along with evidence of weaker economic growth, before considering a return to rate cuts.
Following the inflation report, the Canadian dollar dipped 0.11%, trading at 1.4035 per U.S. dollar. Two-year government bond yields also edged lower to 2.475%.
Price increases in October were mainly supported by higher cellular plan costs and insurance premiums.
