Key Takeaways
- Canada’s inflation rate fell to 2.2% in October from 2.4% in September, though some core measures remained sticky.
- Falling gas and grocery prices helped drive the decline.
- Analysts say the Bank of Canada is likely to keep rates on hold in December after cutting them last month.
Canada’s Consumer Price Index cooled in October, supporting the Bank of Canada’s likely pause in cutting interest rates at its December meeting. According to the latest Statistics Canada report, annual inflation fell to 2.2% after rising 2.4% in September. On a monthly basis, the index rose 0.24%, compared with 0.06% growth the prior month.
Much of the decline was driven by gasoline prices, which were down 9.4% on a yearly basis in October. Grocery prices rose 3.4% annually in October, compared with 4.0% growth in September. “Though grocery prices decelerated in October, prices remained elevated and have exceeded overall inflation for nine consecutive months,” Statistics Canada said.
Excluding volatile gasoline and energy prices, core CPI was 2.7%, up from 2.4% in September. Cellular services prices rose 7.7%, while home and auto insurance prices continued to climb.
Analysts widely expect the Bank of Canada to keep interest rates on hold in December, following its most recent quarter-point cut in October. However, it remains to be seen whether the central bank’s rate-cutting cycle is over, and it’s possible that cuts could resume in 2026.
October CPI Report Key Stats
- CPI rose 0.24% in October month over month after rising 0.06% in September.
- CPI increased 2.2% from year-ago levels after increasing 2.4% in September.
- Core CPI rose 2.7% from year-ago levels after rising 2.4% in September.
The following are excerpts from analyst notes on the October CPI report.
The Rate Cut Cycle Could Resume if the Labor Market Deteriorates in 2026
Charles St-Arnaud, chief economist at Alberta Central
“Overall, there is nothing in today’s report that would raise the Bank of Canada’s level of concern regarding inflation. Headline inflation is moving closer to the mid-point of the inflation target, while various measures suggest underlying inflation is slightly below 3%. With this in mind and the Bank signaling that it is comfortable with the current level of the policy rate, a cut at the December meeting is unlikely. However, it is unclear whether the easing cycle is over. As such, a deterioration of the labor market could lead to further cuts.”
Underlying Inflation Trend Remains Favorable Despite Noisy Data
Tiago Figueiredo, macro strategist at Desjardins Capital Markets
“While there were plenty of moving parts in today’s data, the underlying trend in inflation continues to suggest limited cause for concern.
“Rent prices are rising and that’s puzzling, but the Bank of Canada is likely to look through that strength. Pockets of strength within services are also coming from volatile components which central bankers are likely to put less stock in. We continue to see the Bank of Canada on hold for the next year, but we will be closely watching incoming activity data for signs of further weakness in the Canadian economy.”
Base Effects to Push Inflation Higher in the Short Term
Philip Petursson, chief investment strategist at IG Wealth Management
“Canadian inflation matched our expectations. Combined with the median Core CPI coming in slightly below forecast, this gives the Bank of Canada some breathing room on the inflation front—but don’t get carried away. Headline inflation dipped, yet base effects will likely push it back toward 3% by January. This isn’t renewed price pressure, just math: last year’s November and December prints were flat to negative, so any positive readings now will lift the year-over-year rate. It’s temporary, but higher, nonetheless.
“This uptick will be temporary, and longer-term trends should settle comfortably within the Bank’s target range by the end of first quarter 2026.”
Persistent Inflationary Pressures Limit Bank of Canada’s Options
Matthieu Arseneau and Alexandra Ducharme, National Bank of Canada Capital Markets
“In its latest interest rate decision, the central bank stated that it considered it had done enough with this additional 50 basis point rate cut this fall. October’s employment data, which showed a decline in the unemployment rate and an acceleration in wages, combined with today’s inflation figures, will reinforce its conviction. We continue to view the Canadian economy and labor market as being in excess supply, and the outlook is not reassuring without a trade agreement with the United States, but inflationary pressures are persisting longer than normal. This limits the Bank’s room for maneuvering to give the economy some relief.”
Upside Inflation Risks Remain, but Bank of Canada to Remain on Hold for Now
Michael Davenport, senior economist at Oxford Economics
“Upside risks to inflation have diminished, but they haven’t gone away. We expect headline inflation to continue bouncing around in the low 2% range in the near term, before unfavorable base effects from last year’s GST holiday and the elimination of the consumer carbon price cause inflation to briefly return to 2.5% by mid-2026.
“The October inflation numbers likely won’t do much to sway the Bank of Canada’s thinking ahead of its next interest rate decision on Dec. 10. If anything, it should reinforce the Bank’s view that the policy rate is at the right level to keep inflation near target and support the economy. We continue to call for the Bank of Canada to hold rates steady through 2026.”
Mixed Readings on Core Inflation May Complicate Bank of Canada Outlook
Derek Holt, vice president and head of capital markets economics at Scotiabank Economics
“Well, this was the predictable yawner. The Canadian dollar and government bond yields barely flinched when they saw the CPI readings. Headline was on consensus and the core gauges are a mixed grab bag of readings that on balance came in quite warm. In fact, the suite of the core measures suggest core pressures at the margin that question recent easing.
“In any event, the Bank of Canada doesn’t seem to know which measure(s) of core inflation it’s primarily interested in and so markets also have difficulty determining how the Bank would view the readings. Regardless, the clear message from the Bank of Canada is that it is on a prolonged hold, barring major shocks.”
