Canada's annual inflation rate unexpectedly eased in October, raising the odds of an interest rate cut from the Bank of Canada.
The annual increase in the cost of living slipped to 2.4 per cent last month as gasoline prices fell from September levels, Statistics Canada said Tuesday.
The inflation rate was down a 10th of a percentage point from the month before.
| Getting the inflation picture |
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To get the latest consumer price index (CPI), Statistics Canada looks at the prices of about 600 commodities nationwide. Most prices are checked during monthly visits to major retailers. Other prices are checked by phone or through the internet. Nationally, about 650,000 prices are checked each year. Prices are weighted by their importance in the total budget, so a 10 per cent increase in rent would have a bigger impact on the CPI than a similar increase in bread. The CPI is based on a typical basket of commodities. The contents of that basket are updated every four to five years to reflect current consumer spending patterns. |
Most analysts had expected the annual rate of the cost of living to rise.
Statistics Canada said consumer prices fell 0.3 per cent from September to October as prices at the gasoline pumps dropped by 3.3 per cent.
Cheaper hotel and motel prices and lower prices for women's clothing also helped lower the CPI from September's level.
The core rate of inflation, which excludes the most volatile items in the consumer basket, slipped to 1.8 per cent from two per cent in September, thanks to lower car prices. That's the first time the core rate has been below the Bank of Canada's two per cent target rate since June 2006.
December rate cut possible, some analysts say
Analysts said that drop will give the Bank of Canada the flexibility to start dropping interest rates.
"It's looking more likely that [Bank of Canada governor] David Dodge's swan song will be rate cuts, reflecting lower-than-projected inflation, credit concerns … and economic growth risks," said BMO Capital Markets economist Michael Gregory in a morning commentary.
"There will likely be more price dampening in November's consumer price index and beyond, as the loonie's flight above parity caused a 'social epidemic' of cross-border price comparisons and much less willingness to accept the large discrepancies between Canadian and U.S. prices," he said.
Economists said the high dollar has clearly helped to hold down the cost of living.
"Canadian dollar appreciation is playing an unmistakable role in dampening inflation," said CIBC World Markets senior economist Avery Shenfeld.
"Note the huge gap that has opened up between Canadian headline inflation, at 2.4 per cent, and America's 3.5 per cent price gain over the same period, even with the still-significant gains in Canadian house prices," he said.
The loonie gained two-fifths of a cent to close just at just under $1.02 US.
Alberta again had the country's highest inflation rate, at five per cent. Saskatchewan (up 3.6 per cent), New Brunswick (up 3.3 per cent) and Prince Edward Island (up 3.1 per cent) also had annual CPI increases that topped the national average.
Gas prices higher than last year
On a year-over-year basis, gasoline prices provided much of the upward pressure.
Despite the drop in pump prices between September and October, gas prices were still 13.5 per cent higher than a year earlier.
It cost more to be a homeowner. Mortgage interest costs rose 6.7 per cent in the last year — a 16-year high. Statistics Canada said that was mainly because of higher new housing prices rather than higher mortgage rates.
Canadians also paid more for property taxes and restaurant meals than they did a year earlier. But they saw a 2.4 per cent drop in the price of passenger vehicles as carmakers boosted their discounts on 2007 models.
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