Canadian Inflation Slows on Lower Gasoline Prices

Updated on
  • Price index decelerates for the first time in four months
  • Average of core inflation measures remains unchanged at 1.6%

Canadian inflation eased for the first time in four months in October as gasoline prices fell and the economy showed few signs of price pressure, bolstering the view the central bank can afford to wait before it tightens policy further.

Annual inflation decelerated to 1.4 percent, from 1.6 percent in September, Statistics Canada reported Friday in Ottawa. That matched the median forecast in a Bloomberg survey of economists. The average of the Bank of Canada’s three key core inflation measures was unchanged at 1.6 percent, remaining at the highest since January.

Persistently weak inflation has been one of the main arguments against further interest-rate increases by the Bank of Canada, after it hiked to 1 percent this year. Senior Deputy Governor Carolyn Wilkins said Wednesday in New York policy makers can be cautious about further tightening even after the economy posted strong growth earlier this year.

“For the Bank of Canada, the reality of still-stable inflation provides them with the luxury of time before having to move again on interest rates,” Doug Porter, chief economist in Toronto at Bank of Montreal, wrote in a research note.

Erik Hertzberg/Bloomberg

Still, officials at the central bank have also warned against reading too much into the sluggish readings, arguing many of the factors keeping prices down are temporary. The central bank expects inflation will return to its 2 percent target by the second half of 2018.

Gasoline prices fell 3.2 percent on the month in October, after surging in September on the back of supply disruptions caused by Hurricane Harvey.

Core Measures

For the three so-called core measures, the ‘common’ core rate was 1.6 percent, the ‘median’ core rate was 1.7 percent and the ‘trim’ measure was 1.5 percent. On the month, consumer prices were up 0.1 percent, in line with economist forecasts.

Annual goods inflation slowed to 0.4 percent, while service cost price increases quickened to 2.2 percent from 2.1 percent.

“We think the Bank of Canada will want to see more evidence, and there wasn’t much in October, that underlying inflation is returning to target before adding to the two rate increases announced this summer,” Josh Nye, an economist at the Royal Bank of Canada, wrote in a research note.

— With assistance by Erik Hertzberg

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