The blistering pace of inflation appears to have stabilized -- but it’s not easing up, either, setting the stage for continued rate hikes from the Bank of Canada. Statistics Canada reported the October Consumer Price Index (CPI) stuck to the status quo at 6.9% in October, unchanged from the year-over-year growth recorded in September.
The lack of movement was largely due to rising gas prices, as well as ballooning mortgage costs, which countered slowing price growth in the food category. According to StatCan, excluding food and energy would reduce CPI growth to 5.3% YoY. From a monthly perspective, inflation rose 0.7% last month, following a 0.1% gain in September -- the largest monthly increase since June.
“In October, higher prices at the gas pump put upward pressure on the all-items CPI,” reads StatCan’s report. “Additionally, Canadians renewed or initiated mortgages at higher interest rates, which led to acceleration in the Mortgage Interest Cost Index. Offsetting the upward pressure was slower price growth on a year-over-year basis for natural gas and groceries, particularly prices for fruit, vegetables, and meat.”
The national data agency also notes that prices rose faster than earnings last month, with average hourly wages up 5.6%. This contributes to the drop in purchasing power being felt by Canadians, though the gap is narrower than it was the previous month.
While StatCan doesn’t track the price of resale homes in the CPI, it does include those of newly-built dwellings, via its homeowners’ replacement cost index. This slowed last month, rising 6.9% compared to 7.7% in September. According to StatCan, this marks the seventh consecutive month the index has decelerated.
Property taxes and “other special charges”, which are priced into CPI annually each October, rose 3.6% YoY, compared to 1.5% last year.
Of course, rising interest rates have made a significant mark on inflation, as households have to shell out more than ever to cover their monthly debt obligations. The Mortgage Interest Cost Index rose by 11.4% in October, the highest since February 1991, which it rose by 11.7%.
And the lack of downward movement in today’s print will ensure more of those rate hikes are coming -- though it remains to be seen by how much.
In a research note, Doug Porter, Chief Economist and Managing Director of BMO Economics, writes today’s reading generally matched analyst and market expectations, and is “not a terrible outcome” given the run up in gasoline prices. In fact, inflation holding steady at 6.9% comes in slightly below the BoC’s own Q4 headline inflation expectation of 7.1%.
This “keeps the debate over the next rate decision very much alive -- between 25 and 50 bp hikes,” writes Porter, adding that BMO’s official call remains for a 50-basis-point hike on December 7.
“Given that most measures of core inflation remain locked in a range around 5%, we continue to believe that overnight rates will ultimately need to go above 4% to eventually crack underlying inflation,” he adds.
The Bank of Canada’s top brass has also been very vocal in their expectations that higher rates will linger for longer due to the effects of inflation. In a speech last Thursday, Governor Tiff Macklem pointed to the tight job market and low national unemployment rate as main contributors to inflation, saying a “rebalancing” is needed in the labour market.
“To get there, we need to rebalance the labour market. This will be a difficult adjustment. We want to do this in the best way possible for Canadian workers and businesses,” he stated in his speech.
“When the economy is operating above maximum sustainable employment, businesses can’t find enough workers to keep up with demand. As a result, prices go up and inflation rises. That’s where we are today.”
These recent comments have since drawn the ire of the head of Unifor -- Canada’s largest private sector union -- saying the BoC’s rate hike approach and stance on labour wages a “class war”.
"Rather than developing a tailored response intended to slow profits, stop profiteering, fix supply chain bottlenecks and help workers keep up, policy makers have taken to blaming workers instead, including the governor of the Bank of Canada, who has basically declared class war on working people in this country," said Unifor President Lana Payne in a press conference.