Canada’s annual inflation rate eases more than expected in October on lower gas prices

Canada’s annual inflation rate eased more than expected to 3.1 per cent in October, largely due to lower gasoline prices, and core inflation measures edged down to their lowest levels in about two years, Statistics Canada data showed on Tuesday.

Analysts polled by Reuters had forecast inflation to cool to 3.2 per cent from 3.8 per cent in September. Month-over-month, the consumer price index was up 0.1 per cent, matching forecasts.

The deceleration in headline inflation could fortify investor bets that the Bank of Canada (BoC) will start lowering its key policy rate from a 22-year high of 5.00 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, lowest since December 2021 and November 2021, respectively.

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

The central bank has held rates steady in its last two meetings, but says it remains prepared to hike again if needed. The bank projects inflation to hover around 3.5 per cent until mid-2024, before trickling down to its 2 per cent target in late 2025.

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.

The BoC’s next rate decision is on Dec. 6 – after the release of third-quarter GDP data, which is expected to show that the Canadian economy slipped into a shallow recession.

Later on Tuesday, Finance Minister Chrystia Freeland will deliver a midyear fiscal update that is expected to show widening deficits and weak economic growth, and include targeted spending to boost housing supply.

With a stalling economy, high interest rates and inflation still elevated, Prime Minister Justin Trudeau’s Liberal government is under pressure to fight an affordability crisis in the country without stoking inflationary pressures.