TORONTO — The latest inflation figure due out Tuesday from Statistics Canada is expected to show a slight increase for October — but economists say the measure is still on a long-term downward trend.

Economists polled by Reuters expect the consumer price index to stand at 1.9 percent in October, up from 1.6 percent in September, which was the lowest inflation reading since February 2021.

The price of gasoline was a key reason why September’s number was so low, as oil fell to a low of around $65 a barrel at one point. It is also expected to be a driver of growth in October, when it reached $75 a barrel.

“We expect the headline to come back to 2%, but just as it fell to 1.6%, it’s mostly an energy story,” said RBC economist Claire Fan.

The expected rise in inflation is partly based on changes from last year’s benchmark and should not be seen as a departure from progress in easing the measure, she said.

“The overall story is that this low inflation, or the gradual reduction in inflationary pressure, is still a trend,” Fan said.

Excluding volatile energy and food measures – which Fan expects to hold steady at 2.8% – core inflation should ease to 2.2% in October. from 2.4 percent in September, she said.

BMO Capital Markets sees headline inflation coming in at 1.9 percent and core inflation at 2.4 or 2.5 percent, Benjamin Reitzes, its director of Canadian rates and macro strategist, said in a note.

“October appears to be a bump in the downward trend in inflation. Prices haven’t exactly risen this month, but core effects are challenging, suggesting headline and core inflation will accelerate modestly.”

In addition to a slight increase in gas prices, he expects higher property taxes to be a key driver of growth. The tax increase will help boost housing costs, but will be offset by a smaller increase in mortgage interest costs after the Bank of Canada cut interest rates again in October.

High mortgage payments due to interest rates and a wave of mortgage renewals have put upward pressure on home inflation, but the downward trend in rates should begin to ease the pressure on home inflation, Fan said.

“On a month-to-month basis, I think we’re, if anything, very close to an inflection point.”

The Bank of Canada cut its key rate by half a percentage point in October to 3.75%, the fourth cut since June.

On rents, Desjardins economist Maëlle Boulais-Préseault said in a note last week that rent inflation averaged 8.3 percent in the third quarter, the fastest pace since the 1980s.

That contrasts with home price growth, which fell to 5.5 percent as borrowing costs continued to fall, she said.

Rent inflation, which aims to measure what Canadians actually pay in rent, rather than just the cost of new rents, is expected to fall, but not quickly.

“Our outlook is for a slowdown in the pace of rent inflation over the next few years, consistent with a rising unemployment rate and weaker population growth,” Boulais-Préseault said.

A softening labor market is also expected to help ease pressure on inflation, Fan said.

Contrast that with the US, where inflation rose 2.6% in October from a year earlier, compared with 2.4% in September, as higher government spending and a robust labor market make taming inflation a challenge.

The two countries diverge on a number of key economic measures, including real GDP per capita, which is the largest difference on record, Fan said. In Canada, the measure is three percent lower than it was in 2019, while it is eight percent higher in the U.S.

As the two economies diverge, the Canadian dollar has been under pressure, trading at lows not seen since 2020.

A weaker loonie, a possible upward revision to GDP and a slight pick-up in inflation in October have BMO’s Reitzes expecting the Bank of Canada to opt for an easier quarter-percentage-point cut in its key rate at its December 11 meeting.

However, RBC expects another half-point cut from the central bank given the struggling economy and the time lag for rates to have an effect.

“Given how weak conditions are today, and given that even if you cut rates today, it’s not going to help things until probably at least a couple of quarters later, they really want to start any easing.” Fan said.

“If they think the economy needs support, they want to do it as quickly as possible.”

This report by The Canadian Press was first published on November 17, 2024.

Ian Bickis, Canadian Press