Canada’s inflation rate jumps back to two per cent, curbing large rate-cut bets

Ottawa | Reuters — Canada’s annual inflation rate accelerated more than expected to 2.0 per cent in October as gas prices fell less than the previous month, data showed on Tuesday, shrinking market bets for a bigger rate cut next month.

Analysts polled by Reuters had forecast the inflation rate would speed up to 1.9 per cent from 1.6 per cent in September. In August, the annual rate was two per cent.

On a monthly basis, the consumer price index rose by 0.4 per cent after two consecutive monthly declines, Statistics Canada data showed. The monthly gain also beat market expectations of a 0.3 per cent increase.

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It was the first pick-up in the annual inflation rate since May. The central bank forecasts consumer price inflation to be 2.5 per cent this year and 2.2 per cent next year.

In October, Statistics Canada said a smaller four per cent annual drop in gasoline prices compared with September’s 10.7 per cent decrease led to the acceleration. Excluding gasoline, the inflation rate remained at 2.2 per cent for the third straight month.

This was the last inflation data to be released ahead of the Bank of Canada’s interest rate announcement on Dec. 11, and currency markets now see around a 28 per cent chance of a 50 basis point rate cut, down from 37 per cent before the CPI data release.

The Canadian dollar firmed 0.19 per cent after the data to 1.3989 to the U.S. dollar, or 71.48 U.S. cents. Yields for the government’s two-year bonds fell 2.1 basis points to 3.206 per cent.

The bank has lowered its policy rate by 125 basis points over its last four policy-setting meetings, including a 50 bp cut in October, when Governor Tiff Macklem said there would be further easing if the economy evolved roughly in line with forecasts.

The bank’s preferred measures of core inflation, CPI-median and CPI-trim, also edged up.

CPI-median – or the value at the middle of the set of price changes in a month – increased to 2.5 per cent from 2.3 per cent in September, while CPI-trim – which excludes the most extreme price changes – rose to 2.6 per cent from 2.4 per cent.

Price increases of store-bought food also accelerated to 2.7 per cent in October from 2.4 per cent in September, Statscan said, noting that this was the third consecutive month where grocery price rises outpaced headline inflation.

Services price inflation decelerated to 3.6 per cent, the slowest annual pace since January 2022, while goods prices rose by 0.1 per cent after a one per cent decline in September.

— Reporting by Ismail Shakil and Dale Smith in Ottawa. Additional reporting by Promit Mukherjee.