The federal agency said grocery prices rose at a slower pace in October, but gasoline prices climbed, fueling the headline inflation rate.
“For me, the increase in gasoline prices in October was not a big concern, because…it’s just one component of inflation,” said Tu Nguyen, economist at RSM Canada.
Nguyen noted that gas prices rose because the Organization of the Petroleum Exporting Countries cut production.
TD Economics Director James Orlando said the fear was that gasoline prices and soaring grocery prices could push inflation higher last month. But instead, the latest numbers came “as you expected”.
According to Statistics Canada, higher mortgage interest costs are also putting upward pressure on inflation. Interest rate hikes by the Bank of Canada have made mortgages more expensive and although house prices have started to fall, they have not yet matched the rise in mortgage costs.
The cumulative effect should dampen inflation over the long term.
Rising gasoline prices and rising interest rates were offset by slower growth in the prices of groceries and natural gas.
Food prices have risen at the fastest pace in decades in recent months. In October, grocery store prices were 11% higher than a year ago. That’s down from 11.4% in September.
Despite the slowdown, grocery prices continued to rise year over year at a faster rate than headline inflation for an eleventh consecutive month.
On a monthly basis, the consumer price index rose 0.7%.
The latest inflation figures come after several months of declining headline inflation. After peaking at 8.1% in June, inflation has slowed, mainly due to falling gasoline prices.
However, gasoline prices rose in October for the first time since June, climbing 9.2% from September to October.
Despite the maintenance of the annual rate, economists have been encouraged by the trends of recent months, which suggest that inflation is heading towards the 2% target.
Orlando said economists pay more attention to core inflation, which tends to be less volatile than the headline inflation rate.
“In the current month, when you cut things like food and energy, for example, we’ve seen it slow down once again,” Orlando said. “So that was very encouraging.”
In a client note, RBC economist Claire Fan points out that seasonally-adjusted core inflation edged up 0.2% in October.
The cost of living is a major concern in the Canadian economy, as inflation erodes purchasing power and causes the Bank of Canada to rapidly raise interest rates.
However, the gap between inflation and wage growth is narrowing as inflation slows and wages continue to rise.
In October, wages rose 5.6% from a year ago.
But strong nominal wage growth may not last long amid rising interest rates and an impending economic slowdown.
The Bank of Canada has raised interest rates six times in a row since March to combat high inflation. After cutting rates to near zero during the pandemic, the central bank moved quickly this year to raise the cost of borrowing for Canadians and businesses.
Rising interest rates should lead to an economic slowdown which the central bank hopes will lower inflation.
And although the Bank of Canada began raising interest rates in March, the full effect of the rate hikes has yet to be felt. Economists say it may take up to two years before higher interest rates fully work their way through the economy.
The Bank of Canada will be paying close attention to the latest Consumer Price Index report as it prepares for its next interest rate decision due in December.
The central bank will keep an eye on its preferred core inflation measures, which tend to be less volatile than the headline rate.
These measures increased slightly in October compared to September.
Nguyen said she expects the Bank of Canada to opt for a quarter-percentage-point rate hike next month, though a larger half-percentage hike cannot be expected. excluded.