MNI DATA IMPACT: Canadian October Inflation +0.7% YOY

Canada's inflation rate was 0.7% in October, quickening for a second month on the biggest monthly rise in a measure of housing costs since 1991, the federal statistics office said Wednesday.

Economists predicted price gains would slow to 0.4% from the September pace of 0.5%. Inflation was 0.1% in July and August, reflecting the slack that built up through the spring Covid-19 lockdown that shuttered stores and shops.

An index of new home prices used to estimate the cost of keeping up a residence rose 1.4% on the month, the fastest since 1991, and 3.6% over the past year. The annual inflation rate was also pulled higher by a 2.9% gain in automobiles and a 2.2% rise in food costs.

Gasoline was a major force holding down prices, down 12.4%, and traveler accommodations were down 22.9%. Excluding gasoline, the inflation rate was unchanged at 1%, the bottom of the Bank of Canada's 1% to 3% target band.

The BOC has said inflation won't return sustainably to its 2% central target through its regular two-year horizon, a big reason Governor Tiff Macklem has pledged to hold his main interest rate at 0.25% into 2023.

"With the economy still in such a deep hole and facing a daunting winter, the pickup in inflation shouldn't be a limiting factor for the extension of monetary or fiscal stimulus in the near-term. Indeed, markets are largely shrugging off the surprise," CIBC senior economist Royce Mendes wrote in a research flash.

The three core inflation rates preferred by the BOC averaged 1.8% in October and 1.7% in September. Unlike the main rate, which showed declining prices earlier this year, the core rates never diverged much from 2% even in the steepest downturn since at least the 1930s.

Some of the October price gains are tied to one-off factors that likely won't drive sustainable inflation, with bad weather driving up the price of fresh vegetables by 9.5%. Meat prices were also driven up as Covid-19 disrupted production.

Gains in housing costs are more likely to last, having kicked in again as soon as the lockdown ended and given an extra impetus today with families seeking bigger homes as they self-isolate.