Canada’s yearly inflation rate fell to 2.2 per cent in October as lower gas prices, softening food costs and mortgage interest costs dipping below the 3 per cent mark tamed price growth, according to data published by Statistics Canada on Monday.
The deceleration represents a continuation of recent trends and was largely driven by government policies like the scrapping of a carbon tax on gas.
Without the impact of the carbon tax, the year-over-year consumer price index (CPI) increased by 2.7% in October, a decrease from September’s 2.9% rate.
Inflation was expected by analysts polled by Reuters to ease to 2.1%, a slight decrease from September’s 2.4%. Against forecasts, October monthly inflation rose by 0.2%.
Fuel prices lead the decline
One significant factor in the declining rate of inflation was the cost of gasoline. Compared to a 4.1% decrease in September, the monthly decrease in gas prices was greater in October, resulting in a year-over-year drop of 9.4%.
This year’s persistent year-over-year drop in fuel prices, which has slowed the economy’s overall price increase, has been largely attributed to the repeal of the carbon charge on gasoline.
Food prices decline but stay high
The reduction of food costs was another element contributing to the decrease in inflation. Grocery shop prices increased by 3.4% in October compared to a 4.0% increase in September.
For the eighth consecutive month, grocery prices were higher than the general inflation rate despite this decline, underscoring the ongoing strain that food costs place on Canadian households.
Mortgage interest costs fall below 3%
For the first time in more than three years, mortgage interest costs, a component of housing inflation, grew at an annual rate of 2.9% in October, falling below the 3% threshold.
Rent inflation, on the other hand, increased by more than 5% for the second month in a row. These housing-related expenses, which continue to be a major factor in total inflation rates, have been extensively watched by analysts and policymakers.
Core inflation provides a steady signal
The Bank of Canada, along with economists, watches for signs of longer-term trends in price behaviour, tracks measures of core inflation to help filter out the effects of volatility in some prices, as well as government moves to increase or cut taxes.
The CPI-median, the middlemost part of the CPI, dropped to 2.9% in October, down from a downwardly revised 3.1% in September. Core CPI-trim, which excludes the most extreme price jockeying, slipped to 3.0 per cent from 3.1 per cent.
The Other inflation metrics indicate that inflation pressures are easing gradually, albeit with some volatility in select categories such as fuel and food.
According to a Reuters survey of analysts, inflation was expected to drop from 2.4% in September to 2.1% in October. They predict that inflation will be 0.2% per month.
One of the main justifications given by the Bank of Canada for signalling a pause to rate decreases last month was steady inflation. Its confidence to maintain the present policy rate of 2.25% next month is probably going to be strengthened by another decrease in October.
Monetary policy consequences
The Bank of Canada’s decision to keep its current policy rate of 2.25% after a recent hiatus in rate decreases is probably going to be strengthened by the lowering of inflation.
While ongoing observation of core indicators offers direction on possible future revisions, stable inflation trends provide policymakers with confidence to hold off.
Market responses
The Canadian dollar declined 0.07% to 1.4030 per US dollar, or 71.28 US cents, after the data was released. Yields on two-year government bonds also decreased, falling 1.4 basis points to 2.437%, as a result of slight market adjustments to the lower inflation data.
Overall, as gasoline and food prices start to ease and mortgage interest costs fall below 3%, Canada’s inflation path is also looking calmer.
However, the persistence of rent pressures and high grocery prices indicates that inflationary risks are still present in some sectors and warrant scrutiny from policymakers and householders themselves.
Core inflation measures will remain the only metrics by which to gauge the overall price climate for the coming months.
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