Inflation in Canada Unexpectedly Accelerates on Shelter Costs

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Inflation in Canada unexpectedly picked up in October, partly on the back of rising home ownership costs.

Annual inflation accelerated to 0.7%, from 0.5% in September, Statistics Canada reported Wednesday in Ottawa. That exceeded the 0.4% anticipated by economists in a Bloomberg survey. An index of replacement costs for homeowners rose by the most in 30 years last month, the agency said.

Even with the increase, price pressures remain muted as the nation grapples with the aftermath of the pandemic and renewed restrictions. The Bank of Canada predicts persistent slack in the economy and labor market will keep inflation below its 2% target until at least 2023, allowing policy makers to keep interest rates historically low for the foreseeable future.

“October marks a mild high-side surprise for Canadian inflation,” Doug Porter, chief economist at the Bank of Montreal, said in a report to investors. “But the big picture is that inflation remains below 1%, and probably isn’t going far with the economy about to face some further near-term challenges amid renewed restrictions.”

The acceleration narrows the gap between Canada and inflation in the U.S., which has been hovering around 1%.

Inflation in Canada Unexpectedly Accelerates on Shelter Costs

The homeowners’ index, derived from the price of new homes, rose 1.4%, the largest monthly increase since June 1991, the agency said.

On a monthly basis, prices rose 0.4%, compared with a 0.2% median forecast in the Bloomberg survey. Food and shelter costs were the main upward contributors.

Core inflation measures -- often seen as a better gauge of underlying price pressures -- ticked up to an average of 1.77% in October, the highest reading since February, from 1.7% in September. Economists were forecasting core inflation at 1.73%.

©2020 Bloomberg L.P.

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