Inflation in Canada is expected to show a slight increase for October, with economists forecasting a Consumer Price Index (CPI) of 1.9%, up from 1.6% in September, the lowest level since February 2021. Despite this, the long-term trend indicates a gradual easing of inflationary pressures.

Energy Prices Drive Temporary Increase

The October rise in inflation is primarily attributed to higher energy prices. Oil prices climbed from a low of $65 USD per barrel earlier this year to $75 USD in October, impacting gasoline prices and contributing to the overall inflation increase.

Core Inflation and Housing Costs

Core inflation, excluding volatile components like energy and food, is projected to decrease to 2.2% in October from 2.4% in September, signaling continued progress in reducing underlying price pressures. However, rising property taxes and elevated rental costs remain key contributors to housing inflation, offset slightly by easing mortgage interest rates.

Labour Market and Economic Divergence

Canada's labour market slowdown is expected to reduce upward pressure on inflation, in contrast to the U.S., where robust job growth and increased government spending make inflation reduction more challenging. Additionally, Canada’s real GDP per capita remains 3% below 2019 levels, while the U.S. has seen an 8% increase, highlighting diverging economic trajectories.

Looking Ahead

The Bank of Canada recently reduced its benchmark rate to 3.75% in October, the fourth cut since June, with further reductions anticipated. Economists are divided, with some expecting another 50-basis-point cut and others predicting a more cautious 25-basis-point reduction in December.

As inflationary pressures ease and housing costs stabilize, Canadians can anticipate gradual relief in the coming months, although challenges such as a weakening Canadian dollar and global economic uncertainty remain.