Canadian inflation moderates but underlying price pressures persist
The bottom line:
Headline inflation eased to 2.2% year-over-year in October, marginally above pre-release forecasts of 2.1% and down from September’s 2.4% rate. The slowing was led by declining gasoline prices and a deceleration of food price growth. Excluding those (often volatile) components, underlying price growth trends were little changed and still running above the BoC’s 2% inflation target rate.
The Bank of Canada’s preferred core measures were mixed, with the ‘median’ price growth posting just a 0.1% monthly increase in October while the trim posted a larger 0.2% gain. On a 3-month average basis, both remained above a 2.5% annualized rate and held at around 3% on a year-over-year basis, though they demonstrated further improvement from previous levels.
Part of the rise in ex-food & energy prices in October came from another large increase in property taxes (incorporated annually in the CPI data in October) but by our count, almost half of consumer prices were still growing at an above 3% rate over the last three months.
Overall, October’s inflation data aligns broadly with our baseline scenario. Core price pressures remain sticky at rates above the BoC’s inflation target, consumer demand has proven resilient to-date despite international trade uncertainty, and fiscal policy is set to provide support to growth in the year ahead. The BoC has indicated the overnight interest rate is “about the right level” provided inflation and economic activity continue following the October projections. Given that backdrop, we do not expect further interest rate reductions from the BoC.
The details:
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Most of the deceleration in year-over-year CPI growth stemmed from steeper gasoline price declines this October compared to September (-9.4% y/y versus -4.1% y/y), and this moderation proved sufficient to pull headline inflation lower. Food price growth also slowed, driven by weaker grocery price increases, but remained up more than 3% from a year ago.
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Beyond these more volatile categories, CPI excluding food and energy products climbed higher, rising from 2.4% to 2.7% in October.
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Year-over-year growth in the Bank of Canada’s preferred CPI-trim and CPI-median both edged lower but remained at the top end of the BoC’s 1% to 3% target range at 3.0% and 2.9%, respectively. Examining their annualized three-month rolling averages, which better capture recent trends rather than single-month readings, CPI-trim held steady at 2.6%, while CPI-median eased to 2.6% from 2.8% previously.
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The breadth of inflationary pressures across the CPI basket widened slightly (by our count) in October. Roughly 46% of components demonstrated annualized three-month inflation rates exceeding 3%, little changed from September. The share of the basket growing above the 5% threshold increased during the month, rising from 27% to 31%.
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Two components stood out in October, explaining the small upside surprise between market expectations and the actual data.
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First, rent CPI accelerated from 4.8% y/y to 5.2% y/y, even though price growth for the overall shelter component eased slightly. This contrasts with the continued moderation in market rents.
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Second, property tax increases, reported annually in October, came in at 5.6%, higher than anticipated but still representing a small moderation from the elevated 6% level recorded in October 2024.
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Travel tour pricing also rebounded following its fifth consecutive monthly decline in September, advancing 2.6% year-over-year in October.
Abbey Xu is an economist at RBC. She is a member of the macroeconomic analysis group, focusing on macroeconomic forecasting models and providing timely analysis and updates on economic trends.
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