Canadian Inflation Cools in October

In October, the Consumer Price Index (CPI) rose by 2.2 per cent (y/y). This was lower than September’s 2.4 per cent (y/y) increase.

Key insights

In October, the pace of Canada’s CPI growth eased to 2.2 per cent (year-over-year). The deceleration was grounded primarily in changes to gasoline prices, which were sharply lower than during the same month last year. Encouragingly, the Bank of Canada’s preferred measures of core inflation—which gauge the underlying trend of overall price growth—also eased from 3.1 per cent to 3.0 per cent. Conversely, rent prices accelerated to 5.2 per cent. And, with tariffs still impacting the auto sector, vehicle purchase prices grew by 4.1 per cent (y/y)—up from 3.9 per cent in September.

Reassuringly, the rate of food price growth eased in October. As food is a highly salient category for Canadians when thinking about inflation, its price trends disproportionately influence expectations for future inflation. In October, grocery prices were 3.4 per cent higher than a year ago—a notable improvement compared to the 3.8 per cent pace posted in September. Several food items, including coffee and beef, have seen sharp price increases this year due to climatic conditions and consequent supply challenges. Some of these challenges will persist. Food price growth will fluctuate in the near term (partly due to the GST/HST holiday around the Christmas holiday last year), though the overall pace should stabilize. The recent removal of U.S. tariffs on many food imports should lower their wholesale prices, fostering positive spillover effects for prices in Canada.

Despite the ongoing trade war, Canada’s inflation rate should remain moderate and near the Bank of Canada’s target. Tariffs and supply chain restructuring are adding to businesses’ costs and, usually, firms would pass much of this added cost burden onto consumers. However, weaker economic and employment prospects have eased spending, limiting the ability of businesses to raise prices. The removal of most Canadian counter-tariffs starting in September will also continue to lift pressure from consumer prices.

For more details about the impact of U.S. tariffs and our research on Canada’s place in a changing world, please read more here.