In October | Inflation expected to rise slightly

(Toronto) Inflation data to be released Tuesday by Statistics Canada is expected to show a slight increase for the month of October, but economists say it is still on a long-term downward trend.

Economists polled by Reuters expect the consumer price index to come in at 1.9% for October, down from 1.6% in September, which was the lowest inflation rate since February 2021.

Gasoline prices were a key reason why September’s reading was so low, with oil falling to a low of around US$65 a barrel at one point. It is also expected to be one of the drivers of the rise in October, when it reached US$75 per barrel.

“We expect the overall figure to go up to 2%. It’s primarily an energy issue,” says Claire Fan, an economist at the Royal Bank of Canada (RBC).

The expected increase in inflation is partly based on changes to last year’s baseline and should not be seen as a departure from progress in reducing the measure, she stresses.

Excluding volatile energy and power measurements, including M^me Fan expects them to remain stable at 2.8%, with core inflation expected to fall to 2.2% in October from 2.4% in September, she said.

BMO Capital Markets forecasts headline inflation of 1.9% and core inflation of 2.4 or 2.5%, Benjamin Reitzes, managing director of Canadian rates and macroeconomic strategist, wrote in a note.

“October appears to be an obstacle to the downward trend in inflation. Prices haven’t really risen over the month, but base effects are challenging, suggesting that both headline and core inflation will accelerate modestly. »

In addition to a slight increase in gas prices, Reitzes expects rising property taxes to be a key factor in the increase. It will help drive up housing costs, but it will be offset by a smaller increase in mortgage interest costs, since the Bank of Canada cut interest rates again in October.

High mortgage payments due to interest rates and a wave of mortgage renewals have put upward pressure on housing inflation, but the downward trend in rates should begin to relieve pressure on the housing inflation, according to M^me Fan.

“On a monthly basis, I think we are very close to an inflection point,” she says.

The Bank of Canada lowered its key rate by half a percentage point in October to 3.75%, the fourth cut since June.

Reduce pressure on inflation

On the rent side, Desjardins economist Maëlle Boulais-Préseault said in a note last week that rent inflation averaged 8.3% in the third quarter, the highest rate since the 1980s.

This contrasts with growth in owner-occupied housing prices, which slowed to 5.5% as borrowing costs continued to fall, she said.

Rent inflation, which aims to measure what Canadians actually pay in rent rather than just the cost of new rents, is expected to decline, but not soon.

The easing of the labor market should also help reduce pressure on inflation, Ms.^me Fan.

The opposite is true in the United States, where inflation rose 2.6% in October from a year earlier, up from 2.4% in September, as higher government spending and a weaker labor market robust make it difficult to reduce inflation.

The two countries diverge on a range of key economic measures, including real GDP per capita, where the gap is the widest on record. In Canada, the measurement is 3% lower than in 2019, while it is 8% higher in the United States.

As the two economies diverge, the Canadian dollar is under pressure, trading at levels not seen since 2020.

The weakness of the loonie, a possible upward revision of GDP and the slight increase in inflation in October are all elements that lead Mr. Reitzes of BMO to expect that the Bank of Canada will opt for a more moderate reduction of a quarter of a percentage point in the policy rate at its December 11 meeting.

RBC, however, expects another half-percentage point cut from the central bank, given the struggling economy and the time frame for rates to take effect.