October CPI data should do little to prompt action from the Bank of Canada’s Governing Council next month, or indeed, at any meeting in the foreseeable future.
The latest inflation prints largely matched expectations, indicating a marginal disinflation progress. But with underlying price pressures still elevated, we see little reason for the BoC to lower rates again. That outcome should ultimately prove loonie support if correct, despite a lack of immediate FX reaction to this latest round of data.
Looking at the headline readings, October saw Canadian prices rising 0.2% MoM and 2.2% YoY. The former matched expectations, albeit the latter exceeded consensus projections by a marginal 0.1pp. Still, this latest inflation reading marks a decline in all-items price growth relative to September’s 2.4% reading – a dynamic also reflected across underlying inflation measures. Core median price growth slowed to 2.9% in October, 0.1pp below expectations. But this was from a starting point for September CPI, which was also revised down from 3.2% to 3.1%. Meanwhile, core trim prices matched economist predictions, dropping from 3.1% to 3.0%, level with the top of the BoC’s tolerance band.
All told, then, headlines largely confirmed market expectations, albeit with marginal deviations to both sides of the consensus forecasts.
Our read of the data suggests that these divergences, relative to expectations, can be chalked up to idiosyncratic factors on this occasion too. Food and fuel prices, including gasoline, all slumped sharply, with the last of these falling a notable -4.78% MoM. But offsetting this weakness, shelter costs jumped 0.64% in October alone, the largest single-month increase since the same period in 2024. We think this can be partly attributed to annual property tax updates; nevertheless, with the rent component seemingly picking up momentum, rising 0.97% MoM and 5.19% YoY, this could emerge as cause for concern at the BoC in the coming months, if the pickup continues.
For now, though, we see little if anything in the data to suggest that a change in stance is necessary from the BoC.
That implies no change in rates for the foreseeable, with the Governing Council maintaining the policy rate at 2.25%. From an FX perspective, this would be a marginally more hawkish rate path than is presently priced by swap markets, which continue to see a residual risk of another cut. The implications for the loonie are, therefore, skewed marginally in favour of gains versus the dollar, though given the slow resumption of official data publication in the US, we suspect that greenback fortunes will remain the key determinant of USDCAD performance.
Underlying price growth indicators remain around the top of the BoC’s tolerance band – doing little to suggest that further rate cuts are warranted from the Governing Council
Author:
Nick Rees, Head of Macro Research