After falling for four straight months, Canada’s annual rate of inflation rose in October, something which could put the size of a December interest rate cut by the Bank of Canada into question.
The Consumer Price Index — a broad-based measure of inflation — was 2.0 per cent higher than it was a year ago, up from 1.6 per cent in September.
That puts it bang-on the Bank of Canada’s inflation target, but was higher than most economists had expected.
A consensus of economists surveyed by Bloomberg had expected the data to show CPI was 1.9 per cent higher than it was a year ago.
On a monthly basis, gasoline was 0.7 per cent higher than it was in December.
The rise could put the size of a December interest rate cut by the Bank of Canada into question.
The Bank of Canada has already cut interest rates four times this year, bringing its key overnight interest rate to 3.75 per cent from a peak of five per cent.
The Bank of Canada raised interest rates 10 times between March 2022 and last summer in a bid to wrestle inflation down to its two per cent target. Inflation peaked at 8.1 per cent in June 2022 as the Canadian economy opened back up from COVID-related restrictions. In September, Canada’s annual rate of inflation fell to 1.6 per cent, from two per cent the previous month.
The theory is that by making it more expensive to borrow money, consumers and businesses will spend less, driving down prices and slowing the economy.
Now, as the economy slows and inflation has been heading mostly downward, the Bank is taking the reverse approach, trying to stimulate growth by cutting rates.
This is a developing story.
