As widely expected, Canada’s annual inflation rate accelerated in October, reinforcing the Bank of Canada’s (BoC) belief that inflation will be choppy over the months to come. This immediately lowered market expectations for another 50-basis-point rate cut from the BoC. Inflation has had a substantial impact on consumer and business activity. Despite rising in October, it has trended downward, providing some relief for Canadian households and businesses.

• Canada’s inflation rate was 2.0% year-over-year in October. This is up from the 1.6% annual rate in September and above the 1.9% rate estimated by economists, based on a Bloomberg survey. Still, it remains within the BoC’s target range.
• Energy prices significantly impacted inflation. Energy prices declined on a year-over-year basis in October, but the decline was not as sharp as it was in September. Food price growth accelerated in October. Rising food prices have had a significant impact on Canadian households.
• This was the first increase in Canada’s inflation rate since May 2024. The BoC expected inflation to be choppy given low energy prices at this same time last year. The core measures of inflation that are closely followed by the BoC also ticked higher in October.
• The BoC holds its last meeting of 2024 on December 11. The BoC is likely to keep lowering interest rates, but the pace might be a bit less aggressive in response to higher-than-expected inflation.

Despite the increase, inflation has come down substantially over the past couple of years, which has resulted in the BoC beginning to loosen monetary policy. Furthermore, the BoC is trying to support and reignite business activity amid a period of lacklustre economic growth and a slowdown in the labour market. The BoC is hoping its rate reductions can help boost consumer and business conditions.

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