The annual pace of inflation cooled in October as the cost of gasoline came back down after spiking higher in September when hurricane Harvey forced the shutdown of oil refineries in Texas.
Statistics Canada said Friday the consumer price index was up 1.4% in October compared with a year ago, following a 1.6% increase in September.
The cost of gasoline was up 6.5% year-over-year in October, compared with a 14.1% year-over-year increase in September. On a month-over-month basis, the cost of gasoline fell 3.2%.
Excluding gasoline, the index was up 1.3% compared with a year ago — more than the 1.1% increase in September.
However, CIBC economist Nick Exarhos noted that the recent strength in oil prices will reverse the slide in energy prices.
“There’s evidence that the recent rebound in crude prices will more than reverse that slippage, and base effects will likely ensure that energy will be a positive contributor to the overall inflation rate from here through most of next year,” he said.
Prices were up in seven of the eight major categories compared with a year ago with the transportation and shelter categories contributing the most to the overall increase.
Transportation prices were up 3% compared with a year ago following a 3.8% increase in September, while shelter costs were up 1.2%.
Food costs were up 1.3% as food bought in restaurants gained 2.9%, while food from stores rose 0.6% compared with a year ago.
Prices for clothing and footwear, the only category to move lower, fell 1.5% compared with a year ago as the cost of women’s clothing fell 4.6% compared with a year ago.
Of the Bank of Canada’s three preferred measures of core inflation, which seek to look through the noise of more-volatile items, CPI-common increased to 1.6% compared with 1.5% in September, while CPI-median slipped to 1.7% from 1.8%. CPI-trim held steady at 1.5%.
David Madani, senior Canadian economist at Capital Economics, said with one core measure up, one down and one with no change, he thinks there’s still significant slack in the economy.
“My expectation going forward is that we’ll just continue to see the core inflation measures remain below the 2% market,” said Madani, who expects growth in the economy to slow next year.
The Bank of Canada, which a uses a 2% inflation target in setting monetary policy, raised its key interest rate target twice this year following strong economic growth to start 2017.
However, economists expect growth for the second half of the year to come in at a slower pace and the central bank has suggested that while further rate hikes are likely, they will be cautious and pay close attention to the incoming economic data.
“For the Bank of Canada, the reality of still-stable inflation provides them with the luxury of time before having to move again on interest rates, allowing them some room to assess the impact of the OSFI rule changes and how NAFTA is progressing,” Bank of Montreal chief economist Doug Porter wrote in a report.
“We continue to expect the bank to wait until at least the March meeting before hiking next.”