Economists predict inflation uptick, but Canada stays on track for long-term easing, says RBC
Statistics Canada’s October inflation data, due Tuesday, is expected to reveal a slight increase in the consumer price index (CPI), predicted at 1.9 percent, up from 1.6 percent in September.
Economists maintain that inflation remains on a long-term downward trajectory despite this uptick, according to BNN Bloomberg.
The rise in inflation is attributed to higher gasoline prices, which increased from a low of around US$65 per barrel in September to over US$75 in October.
RBC economist Claire Fan noted, “We’re expecting headline to go back up to two per cent, but just like how it dropped down to 1.6 per cent, it’s mostly an energy story.”
She added that the increase reflects shifts in last year’s baseline rather than a reversal of progress on reducing inflation.
Excluding volatile energy and food costs, core inflation is expected to decline slightly to 2.2 percent in October from 2.4 percent in September, according to Fan.
In contrast, BMO Capital Markets predicts core inflation to range between 2.4 and 2.5 percent.
Benjamin Reitzes, BMO’s managing director of Canadian rates and macro strategy, identified rising property taxes as another inflation driver, noting they contribute to increased shelter costs.
However, this is partially offset by lower mortgage interest costs following the Bank of Canada’s October rate cut.
Fan suggested that the housing market might be nearing a turning point, saying, “On a month-over-month basis, I think we are, if anything, very close to an inflection point.”
Rental inflation, which averaged 8.3 percent in the third quarter—the highest rate since the 1980s—contrasts with slower growth in owned accommodation prices at 5.5 percent.
Desjardins economist Maëlle Boulais-Préseault expects rent inflation to gradually decrease alongside rising unemployment and slower population growth.
She stated, “Our outlook is for a slowdown in the pace of rent inflation over the next few years, in line with a rising unemployment rate and weaker population growth.”
Inflation trends in Canada differ from those in the US, where inflation rose to 2.6 percent in October from 2.4 percent in September. Fan attributed this to higher government spending and a stronger labour market in the US.
Canada’s real GDP per capita, now 3 percent below 2019 levels, contrasts sharply with an 8 percent increase in the US. This economic divergence has weakened the Canadian dollar, which is trading at lows not seen since 2020.
The Bank of Canada’s next policy decision on December 11 could bring another rate cut. While BMO’s Reitzes anticipates a milder quarter-point reduction, RBC expects another half-point cut, citing the struggling economy and the delayed impact of monetary policy.
Fan explained, “Given how weak current conditions are, and given the fact that even if you cut rates today, it won’t help with things until probably at least a couple quarters down the road, they really want to front load any amount of easing.”
“If they think the economy needs the support, they want to do it as quickly as possible.”
