MNI: Canada Oct CPI Slows To 3.1%, Core Is Slowest In 2 Years

Canada's inflation rate slowed to 3.1% in October from 3.8% in September, matching economist predictions based on tumbling gasoline prices, and core indexes that have worried central bank officials came in at the lowest in two years.

Statistics Canada's report Tuesday from Ottawa showed the "median" core index slowing to 3.6% from 3.9% and core "trim" prices slowing to 3.5% from 3.7%. Headline inflation slowed as gasoline prices fell 7.8% from a year ago.

Bank of Canada Governor Tiff Macklem has held borrowing costs at the highest since 2001 for the last several meetings after 10 prior hikes and says he's prepared to hike again because of upside inflation risks. With headline prices moving close to his 1% to 3% target band and coming down from a peak of 8.1%, as well as stalling GDP and rising unemployment, the lingering case for hiking again may rest more on price expectations than inflation itself.

While lower gasoline prices should help ease the risk that elevated inflation expectations are becoming entrenched, the October inflation figures showed less progress in grocery bills that have dominated the news. The prices of food purchased from stores rose 5.4% in October compared with 5.8% in September. Mortgage interest costs are still rising at about record a 30% pace, and the agency's annual calculation of property taxes showed the biggest increase since 1992 at 4.9%. 

Another sign core inflation may be sticky in Canada like other countries comes from services prices, which quickened to 4.6% in October from 3.9% in September. The IMF has warned central banks must keep high-for-long rates because of sticky core inflation across major economies, while officials at the Fed and BOE have said it's far too soon to look at loosening monetary policy. Macklem has also warned fiscal policy is also starting to create new inflation pressure and the federal government presents a new fiscal plan today where investors expect continued spending gains. 

The Bank says it will take until 2025 for inflation to return to the 2% target. This is the last inflation report officials see before the Dec. 6 interest rate decision. Before then is a Macklem speech and press conference Wednesday and quarterly GDP and job reports next week. Most investors are already predicting the Bank of Canada is finished hiking and many see officials cutting rates around the middle of next year.

On a monthly basis, prices rose 0.1% in October from September, also matching economist forecasts.