Canadian consumer prices were down 0.1% (not seasonally adjusted) in October, but still lifted the headline inflation rate into positive territory, +0.1% year/year -- slightly lower than expectations and the first annual increase in five months. Energy prices were broadly lower and food prices fell for the third consecutive month (now up only 2.3% y/y from a peak of 7.9% in March).
Grocery store price wars look to be heating up as we head into the holiday season, which should keep a lid on food inflation. Even so, headline inflation is likely to continue to rise over the next three months as year-ago price declines fall out of the calculation.
On the core inflation front, underlying prices unexpectedly rose 0.1%, boosting the yearly rate to 1.8%, up from the prior month’s 1.5% increase and a three-month high. That ends a four-month streak of decelerating core inflation. Seasonal downward pressure on prices wasn’t as forceful as usual, with core prices rising 0.2% in seasonally adjusted terms.
Notable movers were clothing prices (+0.4% seasonally-adjusted), as children’s clothing and footwear jumped, and shelter (+0.2%, s.a.), as home prices are rising once again.
October’s 1.8% y/y increase in core inflation is well above the Bank of Canada’s call of 1.4% for Q4, but next month has a very favourable year ago comparison (prices were up 0.7% n.s.a. in November 2008), which should push core inflation down sharply, more in line with the BoC’s view.
