• The year-over-year increase in all items CPI slipped back to 1.4% in October after rising to 1.6% in September.
  • Energy prices were responsible for the slowing as gasoline prices retraced much of the previous month’s hurricane-related increase.
  • Year-over-year inflation excluding food and energy rose to 1.4% from a three-year low of 1.2% in September.
  • The average of the Bank of Canada’s three preferred core measures was unchanged at 1.6% in October. Those measures have trended gradually higher from a multi-year low of 1.3% in May.

Our Take:

Today’s inflation numbers were as expected – stable core inflation and an energy-related dip in the headline reading. It remains the case that underlying inflation is stuck below 2% despite the Canadian economy’s strong performance over the last year and no shortage of consumer demand. The Bank of Canada continues to expect that, with the economy running up against longer-run capacity limits, inflation will return to their 2% target on a sustained basis. But at the same time, they have expressed uncertainty regarding how much room the economy has to run before inflationary pressures pick up. And while their research indicates global factors and technology haven’t been weighing significantly on inflation, they aren’t fully dismissed those factors. Given these concerns, we think the Bank of Canada will want to see more evidence (and there wasn’t much in October) that underlying inflation is returning to target before adding to the two rate increases announced this summer. We think waiting until next April to resume tightening will not only allow the central bank to see how inflation evolves, but also get more information on other sources of uncertainty – particularly progress on Nafta talks and how households respond to higher rates and further regulatory changes in the housing market.


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