Canada’s consumer inflation accelerates in October, but unlikely to continue same pace ahead

Canada’s inflation gauged by the consumer price index came in line with consensus expectations in October. The consumer price inflation accelerated to 1.5 percent year-on-year, a slight rise from the 1.3 percent pace registered in September. Meanwhile, core inflation slowed in the month to 1.7 percent from 1.8 percent seen in the prior month.

The year-on-year headline index was mainly driven by the transportation index, which rose 3 percent in October. This is a considerable rise from the 2.3 percent rate recorded in September. Most of the rise in the transportation index was attributed to the increasing gasoline prices that seemed to be getting passed on to consumers.

Moreover, the shelter index also registered a marked rise of 1.9 percent year-on-year, the largest 12-month advanced since January 2015. In the prior month, the shelter index had increased 1.7 percent year-on-year, owing to increasing homeowners’ replacement costs, with a similar contribution from increasing property taxes, noted TD Economics in a research report.

Out of eight major categories, inflation rose in six of them in October. Food price inflation surprisingly recorded its first drop since January 2000, with prices falling 0.7 percent from October 2015. Given the rapid increase in prices of food earlier in 2016, food prices are expected to continue to be a net drag on the headline index until the impact of past depreciation of the loonie falls out of the food index, stated TD Economics.

The drag from low oil and gasoline prices that had curbed the headline inflation earlier is starting to wane with this trend likely to continue as oil prices continue their gradual rebound. Given that the pass through from earlier depreciation of the CAD is nearing completion, the headline inflation is unlikely to be stimulated considerably, according to TD Economics.

Meanwhile, three new measures of underlying trend inflation are set to replace the core measure, as indicated last month by the Canadian central bank. In all, October’s inflation data likely has little implications for Canada’s monetary policy, added TD Economics.

At 05:05 GMT, the FxWirePro's Hourly Strength Index of Canadian Dollar was bullish at 83.9146, while, the FxWirePro's Hourly Strength Index of USD was slightly bullish at 73.0645. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex