By Ismail Shakil
OTTAWA (Reuters) -Canada’s annual inflation rate accelerated more than expected to 2.0% in October as gas prices fell less than the previous month, data showed on Tuesday, shrinking market bets for a bigger rate cut next month.
Analysts polled by Reuters had forecast the inflation rate would speed up to 1.9% from 1.6% in September. In August, the annual rate was 2%.
On a monthly basis, the consumer price index rose by 0.4% after two consecutive monthly declines, Statistics Canada data showed. The monthly gain also beat market expectations of a 0.3% increase.
It was the first pick-up in the annual inflation rate since May. The central bank forecasts consumer price inflation to be 2.5% this year and 2.2% next year.
In October, Statistics Canada said a smaller 4% annual drop in gasoline prices compared with September’s 10.7% decrease led to the acceleration. Excluding gasoline, the inflation rate remained at 2.2% for the third straight month.
This was the last inflation data to be released ahead of the Bank of Canada’s interest rate announcement on Dec. 11, and currency markets now see around a 28% chance of a 50 basis point rate cut, down from 37% before the CPI data release.
The Canadian dollar firmed 0.19% after the data to 1.3989 to the U.S. dollar, or 71.48 U.S. cents. Yields for the government’s two-year bonds fell 2.1 basis points to 3.206%.
The bank has lowered its policy rate by 125 basis points over its last four policy-setting meetings, including a 50 bp cut in October, when Governor Tiff Macklem said there would be further easing if the economy evolved roughly in line with forecasts.
The bank’s preferred measures of core inflation, CPI-median and CPI-trim, also edged up.
CPI-median – or the value at the middle of the set of price changes in a month – increased to 2.5% from 2.3% in September, while CPI-trim – which excludes the most extreme price changes – rose to 2.6% from 2.4%.
Price increases of store-bought food also accelerated to 2.7% in October from 2.4% in September, Statscan said, noting that this was the third consecutive month where grocery price rises outpaced headline inflation.
Services price inflation decelerated to 3.6%, the slowest annual pace since January 2022, while goods prices rose by 0.1% after a 1% decline in September.
