Business

Inflation rate inches up to 2.4% in October

Canada's annual inflation rate remained above the central bank's target for the ninth straight month in October, data showed on Friday, but markets saw few signs the Bank of Canada would hike interest rates next month.
A cashier works a cash register.
The cost of living went up at an annual pace of 2.4 per cent last month. (Simon Dawson/Bloomberg)

Canada's annual inflation rate remained above the central bank's target for the ninth straight month in October, data showed on Friday, but markets saw few signs the Bank of Canada would hike interest rates next month.

Statistics Canada said the annual inflation rate edged up to 2.4 per cent from 2.2 per cent in September. Analysts in a Reuters poll had forecast it would stay at 2.2 per cent.

The central bank, which has consistently said inflation will move back down toward its 2 per cent target by early 2019, is due to announce its next interest rate decision on Dec. 5.

Andrew Grantham, senior economist at CIBC Capital Markets, said lower prices for oil — one of Canada's main exports -— would soon start pulling down inflation.

"We see nothing here to tip the Bank of Canada's hand towards a December hike," he said in a phone interview.

Market expectations of an interest rate hike on Dec. 5, as reflected in the overnight index swaps market, dipped to 23.20 per cent from 23.40 per cent. Earlier this month, that figure was above 30 per cent.

Two of the three central bank's three core inflation measures posted gains while CPI common, which the bank says is the best gauge of the economy's underperformance, was unchanged at 1.9 per cent.

"I think we're going to see the headline number drop pretty heavily below 2 per cent in the November reading," said Doug Porter, chief economist at BMO Capital Markets.

The Bank of Canada has hiked rates five times since July 2017, and says more increases will be needed. Rates are rising at "exactly" the right pace, Governor Stephen Poloz said on Nov. 5.

Prices for travel tours rose 3.0 per cent from October 2017 compared with a 4.4 per cent year-over-year decline in September. Passenger vehicle prices rose by 1.7 per cent compared with a year earlier on lower rebates and a greater variety of models.

The Canadian dollar extended its decline on the data, touching $1.3244 to the U.S. dollar, or 75.51 U.S. cents.

Separately, Statscan said the value of retail trade rose by 0.2 per cent in September from August, in part due to higher sales at food stores. Stripping out the effect of price changes, volumes increased by 0.5 per cent.

"I think it's a bit of a pleasant surprise. It's nice to see the volumes coming up, a good way to end the quarter," said Brian DePratto, a senior economist at TD Bank.