Canada’s headline inflation rate bounced back in October, with the Consumer Price Index (CPI) rising to 2.0% year-over-year, up from September’s three-year low of 1.6%. Turned out, the return to the Bank of Canada’s (BOC) target rate was primarily driven by a smaller decline in gasoline prices.

On a monthly basis, the headline CPI increased 0.4% in October, reversing September’s 0.4% decline. Core CPI jumped by 0.4%, much higher than September’s 0.0% and the expected 0.1% uptick.

Link to Canada’s Consumer Price Index Report (October 2024)

Meanwhile, BOC’s preferred core measures also showed broad accelerations:

• Trimmed CPI increased to 2.6% from September’s 2.4%
• Median CPI accelerated from September’s 2.3% to 2.5% in October
• Common CPI ticked higher from 2.1% to 2.2%

Other key inflation measures revealed:

• All-items CPI excluding gasoline remained steady at 2.2% year-over-year for the third consecutive month
• Goods prices rose slightly by 0.1% annually, recovering from September’s 1.0% decline
• Services inflation eased to 3.6%, marking the smallest yearly increase since January 2022

Components of the report showed that the acceleration in headline CPI was largely attributed to:

• Gasoline prices falling at a slower pace (-4.0%) compared to September’s steep decline (-10.7%)
• Food prices from stores rising faster at 2.7% versus September’s 2.4%
• Property taxes increasing by 6.0%, the highest yearly increase since 1992
• Shelter costs continuing to ease, rising 4.8% versus September’s 5.0%
• Mortgage interest cost growth decelerating to 14.7% from September’s 16.7%

Market Reactions

Canadian Dollar vs. Major Currencies: 5-min

Overlay of CAD vs. Major Currencies Chart by TradingView

Inflation returning to the midpoint of Bank of Canada’s 1%-3% target likely won’t stop Governor Macklem from cutting rates in December, but it could reduce the cut to 25bps instead of 50bps.

This prospect boosted CAD, which reversed early losses in a risk-off U.S. session. The Loonie saw its biggest gains against safe havens like JPY, USD, and CHF as traders embraced risk later in the day.

Quick recoveries against EUR and GBP signaled markets viewed the inflation data as supportive of a cautious BOC approach. However, CAD lost ground to AUD and NZD as risk appetite improved, favoring other commodity currencies.