Inflation rises to 2% in October, cooling speculation about a ‘jumbo’ rate cut
Annual inflation accelerated to 2% in October, faster than the 1.6% reading in September, as property taxes increased by the most in more than three decades, Statistics Canada said Tuesday.
On a monthly basis, the consumer price index rose a seasonally adjusted 0.3%. Both the annual and the monthly figures exceeded consensus forecasts. Food prices were 3% higher than a year earlier, and shelter costs were up 4.8%.
The October reading reverses what had been a declining trend in headline inflation—the rate has steadily come down over the past year from 4% in August 2023—and suggests the Bank of Canada may have less scope to lower borrowing costs than previously thought.
Trading in overnight index swaps after Tuesday's report shows bets on a “jumbo” 50 basis-point interest rate cut in December dropped from about 50-50 to one-in-three, according to Bloomberg.
“This heavy result should take some more steam out of the call for another 50 bp rate cut from the Bank of Canada in December,” Doug Porter, chief economist at BMO Capital Markets, wrote in a note to clients. “We have been in the 25 bp camp from the start and this report only reinforces that expectation, along with evidence that housing is stirring, the Fed will turn more cautious, and a limping loonie.”
Porter added that GDP and employment reports between now and the Bank of Canada’s Dec. 11 meeting could still change the picture for interest rates, though an expected upward revision to GDP means the jobs report would have to be “truly tough” to put an aggressive rate cut back into play.
