Canadian Inflation Holds at 1.9%, Core Measures Accelerate

(Bloomberg) -- Consumer prices in Canada held steady in October for a third-straight month, while the average of core measures ticked up slightly.

Annual inflation in October was unchanged at 1.9%, Statistics Canada reported Wednesday. That matched economist expectations. On a monthly basis, the consumer price index rose 0.3%, also matching forecasts and the first increase since July.

Canada’s CPI has grown at 1.9% or more on an annual basis for eight straight months, reinforcing the central bank’s recent decision to keep interest rates unchanged. The gains have coincided with a robust labor market, and come despite weak business investment and exports.

Core inflation -- seen as a better measure of underlying price pressure than the headline reading -- ticked up slightly to 2.1% from 2% in September, matching some of the highest readings in the past decade.

The Canadian currency pared declines after the report, and was trading little changed at C$1.3287 against the U.S. dollar at 8:42 a.m. Toronto time. Two-year government bond yields fell 1 basis point to 1.51%.

Key Insights

• Stable inflation dynamics in Canada are one reason why economists and markets have been anticipating fewer cuts and a slower pace of reductions by the Bank of Canada than by the Federal Reserve. Both the headline and core readings have hovered near the central bank’s 2% target in recent months
• “The October data should have no impact on the Bank of Canada: all of the risks to its outlook remain in the future at this stage,” Brett House, deputy chief economist at Scotiabank in Toronto, wrote in a note to clients
• CPI is one of the first prints of the fourth quarter and given the stronger price pressure, may give the central bank pause when considering cuts at its next meeting in December
• Mortgage interest costs and passenger vehicle insurance premiums were the main upward contributors to the annual headline inflation figure, while gasoline and telephone services prices were a drag

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• Consumers continued to pay less for gasoline on a year- over-year basis amid falling energy prices
• Fresh vegetable prices grew at a slower pace in October, as supply pressure stemming from inclement weather in agricultural regions eased
• Travel tours and passenger vehicle purchases contributed most to the monthly increase while traveler accommodations and fresh vegetables were the largest downside factors

--With assistance from Erik Hertzberg.

To contact the reporter on this story: Shelly Hagan in Ottawa at shagan9@bloomberg.net

To contact the editors responsible for this story: Theophilos Argitis at targitis@bloomberg.net, Chris Fournier

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