October inflation expected to rise slightly despite long-term downward trend – Winnipeg Free Press

TORONTO – The latest inflation data from Statistics Canada to be released on Tuesday is expected to show a slight increase for October; but economists say the measure is still on a long-term downward trend.

Economists polled by Reuters expect the consumer price index to rise to 1.9 percent for October from 1.6 percent in September, the lowest inflation reading since February 2021.

The price of gas was the main reason why the September number was so low; oil fell to a low of around US$65 per barrel at one point. It is also expected to be a factor in the increase in October, when it exceeded US$75 per barrel.

“We expect the headline to rise to two percent, but as it falls to 1.6 percent, this is mostly an energy story,” said RBC economist Claire Fan.

He said the expected inflation increase was partly based on changes in last year’s base and should not be seen as a departure from progress towards reducing measures.

“The overall story is that this low inflation or gradually decreasing inflationary pressure is still a trend,” Fan said. he said.

Excluding volatile energy and food measures, which Fan expects to remain steady at 2.8 percent, core inflation will fall to 2.2 percent in October from 2.4 percent in September, he said.

Benjamin Reitzes, managing director of Canadian interest rates and macro strategist at BMO Capital Markets, predicts in a note that headline inflation will be 1.9 per cent and core inflation will be 2.4 or 2.5 per cent.

“October seems to be a bump in the downward trend in inflation. “Prices did not fully increase during the month, but base effects remain challenging, suggesting that headline and core inflation will accelerate modestly.”

He expects the slight increase in gas prices, as well as increased property taxes, to be a major factor in this increase. Increasing taxes will help increase housing costs, but will be offset by a smaller increase in mortgage interest costs after the Bank of Canada cut interest rates again in October.

High mortgage payments due to interest rates and a wave of mortgage renewals are putting upward pressure on housing inflation, but the downward trend in rates should start to ease the pressure on housing inflation, Fan said.

“On a month-by-month basis, I think we are very close to a turning point.”

The Bank of Canada reduced the policy rate by half a point to 3.75 percent in October; This was the fourth decline since June.

On the rent side, Desjardins economist Maëlle Boulais-Préseault said in a note last week that rent inflation reached an average of 8.3 percent in the third quarter, the highest level since the 1980s.

This was in contrast to growth in prices of owned accommodation, which had slowed to 5.5 per cent as borrowing costs continued to fall, he said.

Rent inflation, which aims to measure how much Canadians are actually paying in rent and not just the cost of new rent, is also expected to fall, but that’s not in a big hurry.

“Our outlook is for a slowdown in the pace of rent inflation over the next few years, in line with the rising unemployment rate and weak population growth,” Boulais-Préseault said.

Fan said the softening in the labor market is also expected to help reduce the pressure on inflation.

This is in stark contrast to the United States, where inflation rose 2.6 percent in October from a year earlier, compared to 2.4 percent in September, as higher government spending and a strong labor market made it difficult to reduce inflation.

Fan said the two countries differ on a number of key economic measures, including that real GDP per capita is the widest spread on record. In Canada, the measurement was three per cent lower than in 2019, while in the US it was eight per cent higher

The Canadian dollar is under pressure as the two economies drift apart, trading at the lowest levels not seen since 2020.