Canada's annual inflation rate rose more than expected to 2.0% in October, driven by a smaller drop in gas prices than in the previous month, according to data released on Tuesday. These developments are expected to reduce the possibility of a major interest rate cut in December.
Analysts polled by Reuters forecast the inflation rate to rise to 1.9% from 1.6% in September. In August, the annual rate was 2.0%.
On a monthly basis, the consumer price index increased by 0.4% after recording two consecutive months of decline. Statistics Canada data showed this monthly increase also exceeded market expectations of 0.3%.
While this was the first increase in the annual inflation rate since June, the rise was broadly in line with the central bank's forecast that it would return to 2.0%, after lower energy prices accelerated the decline in headline inflation in recent months.
In October, Statistics Canada reported that a smaller annual decline in gas prices of 4.0%, compared to a 10.7% decline in September, contributed to this acceleration. Excluding gas prices, the inflation rate remained at 2.2% for the third month in a row.
This is the last inflation data released before the Bank of Canada's interest rate announcement on December 11, when money markets see around a 60% chance of at least a 25 basis point cut.
The bank has cut policy rates by 125 basis points in the last four policy meetings, including a cut of 50 basis points in October. Governor Tiff Macklem said at the time that further easing would be done if the economy grew as expected.
The bank's preferred core inflation measures, CPI-median and CPI-trim, also rose. CPI-median – or the value in the middle of price changes in a month – rose to 2.5% from 2.3% in September, while CPI-trim – which excludes the most extreme price changes – rose to 2.6% from 2.4%.
The increase in the price of food purchased from stores also increased to 2.7% in October from 2.4% in September, according to Statistics Canada. This is the third month in a row that grocery price increases have outpaced the headline inflation rate.
The rate of service price inflation eased to 3.6%, the slowest annual rate since January 2022, while the price of goods rose by 0.1% after a 1.0% decline in September
