Inflation in Canada accelerated unexpectedly in October, beating market expectations, but leaving the outlook for the Bank of Canada’s interest-rate path largely unchanged. Canada’s consumer-price index advanced 2.4% on a year-over-year basis in October, Statistics Canada said Friday, following a 2.2% rise in the previous month. Market expectations were for a 2.2% gain in October. On a month-over-month basis, the CPI rose 0.3%.
The Bank of Canada’s preferred measures for underlying inflation were little changed in October. Core-inflation prices rose in a range from 1.9% to 2.1% for an average of 2.0%, up slightly from the previous month’s revised 1.9% average. Canada’s central bank sets rate policy to achieve and maintain 2% inflation. The headline annual inflation rate in Canada has come in at 2% or higher for nine straight months.
Meanwhile, retail sales rose unexpectedly in September, led by gains in food and beverage sales. September retail sales rose 0.2% from the previous month, to a seasonally adjusted 50.93 billion Canadian dollars ($38.57 billion), Statistics Canada said Friday. The Bank of Canada said last month that interest rates will ultimately need to reach a neutral level of around 2.5% to 3.5% to keep inflation on track. The central bank has raised its benchmark overnight rate five times since mid-2017, most recently in October, bringing it to the current level of 1.75%.
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Ahead of Friday’s data releases, market expectations were for the central bank to remain on pause at its next rate decision in early December, in part because of the steep discount energy producers face on Alberta heavy crude, which is hurting the country’s energy industry. New tax measures introduced by the federal government earlier this week should help support business investment, economists said, but weren’t expected to prompt a December rate move.
BMO Capital Markets chief economist Doug Porter said the inflation and retail sales data released on Friday marked upside surprises that have been a rarity for Canada in recent months. “However, the modest high-side readings won’t do much to counter the much bigger force of rapidly fading oil prices, for both the inflation and growth outlook over the near term,” he said.
Friday’s inflation data aren’t shifting expectations that the Bank of Canada will stay on hold at its Dec. 5 meeting, Mr. Porter said. He said the stronger data slightly strengthen the case for a January rate rise, but the central bank would likely need to see some recovery in oil prices for that to happen. The October inflation report showed that all major components tracked by Statistics Canada rose on a 12-month basis.
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Gasoline prices increased 12% in October, matching the previous month’s advance. Higher mortgage interest costs, reflecting rate increases over the past year, and higher prices for food purchased from restaurants also contributed to the year-over-year advance in consumer prices.