Inflation rate holds steady at 6.9%


Kevin Carmichael: Latest CPI won’t stop Bank of Canada from hiking rates further, but it might pave way for a pause in new year

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The consumer price index, which the Bank of Canada’s uses to guide its interest-rate policy, increased 6.9 per cent in October from a year earlier, matching the previous month’s year-over-year gain, Statistics Canada reported on Nov. 16. Grocery prices and natural gas costs grew at a slower pace, offsetting higher gasoline prices. On the surface, the numbers are a positive, as many on Bay Street had assumed that inflation accelerated in October.

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Price plateau

It’s starting to look like Canadian inflation has peaked. Annual inflation surged to 8.1 per cent in June, and has slowed ever since. It’s notable that a 17.8-per-cent jump in the price of gasoline from October 2021 — compared with a 13.2-per-cent increase in September — failed to push headline inflation back above seven per cent, as fuel prices have been the driving factor behind the surge in the cost of living over the past year. It suggests that higher interest rates are beginning to take the heat off an economy that the central bank deemed was too hot for its own good.

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Food focus

Food prices rose 10.1 per cent from a year earlier, compared with 10.3 per cent in September. That figure is still too high, considering year-over-year wage increases continue to trail inflation. However, the figure does offer hope that the effects of poor harvests in 2021 and the disruption to food supply caused by Russia’s invasion of Ukraine are starting to fade. The price of meat, fresh fruit and fresh vegetables increased at a slower pace, Statistics Canada said.

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Still, food has replaced fuel as the most politically sensitive piece of the inflation story. The price of food purchased at stores increased 11 per cent in October from the year-ago month, exceeding the headline number for the 11th consecutive month, Statistics Canada said.

Bottom line

Inflation is running more than three times faster than the Bank of Canada’s two-per-cent target, so the central bank almost certainly will raise interest rates again when its leaders next gather in early December. “Given elevated inflation and inflation expectations, as well as ongoing demand pressures in the economy, the Governing Council expects that the policy interest rate will need to rise further,” the central bank said last month, when it increased the benchmark rate a half point, to 3.75 per cent. The latest numbers won’t alter that plan, but they might allow the central bank to start thinking about pausing interest-rate increases at some point early in 2023.

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