Canada’s inflation accelerated in October, with the annual headline CPI rising to 2.0% yoy, slightly above expectations of 1.9% yoy and up from September’s 1.6% yoy. Slower decline in gasoline prices was a key driver, with prices falling -4.0% yoy compared to a sharper -10.7% yoy drop in September. Excluding gasoline, the all-items CPI maintained a steady rate of 2.2% yoy, consistent with August and September.
Goods prices saw a modest rebound, rising 0.1% yoy following -1.0% yoy decline in September. Services inflation moderated to 3.6% yoy, the smallest increase since January 2022. On a monthly basis, CPI rose by 0.4% mom, reversing a similar decline from the previous month.
Core inflation measures also exceeded expectations. CPI median increased from 2.3% yoy to 2.5% yoy, CPI trimmed rose from 2.4% yoy to 2.6% yoy, and CPI common ticked up from 2.1% yoy to 2.2% yoy. All three exceeded consensus forecasts.
Fed’s Schmid: Path and destination of rate cut yet to be determined
Kansas City Fed President Jeffrey Schmid highlighted in a speech overnight the decision to lower rates this year as a reflection of the “growing confidence” in inflation’s moderation.
This optimism, he explained, stems from signs that “both labor and product markets have come into better balance in recent months.”
While acknowledging this progress, Schmid cautioned, “It still remains to be seen how much further interest rates will decline or where they might eventually settle.”
Schmid also addressed concerns about the implications of large fiscal deficits on monetary policy. He emphasized that such deficits are not inherently inflationary, as long as Fed maintains its commitment to the 2% inflation target.
However, he warned that this approach could necessitate “persistently higher interest rates,” creating tensions with political authorities. He noted, “History has shown that efforts to avoid higher interest rates by accommodating deficits often result in higher inflation.”