Quick take

It’s a bird, it’s a plane, it’s October’s inflation figures

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  • The Consumer Price Index (CPI) continued its ascent in October, rising by 4.7 per cent (y/y). This was the highest year-over-year growth since February 2003. October’s inflation figure matched the consensus forecast of 4.7 per cent.
  • Gasoline prices grew by 5.0 per cent (m/m) and were 41.7 per cent higher than a year ago. Year-over-year food prices also increased, both in stores (+3.9 per cent) and restaurants (+3.5 per cent).
  • Excluding food and energy, inflation climbed by 3.2 per cent in October. Prices rose in all eight major CPI components. Beyond gasoline prices, homeowner’s replacement costs (+13.5 per cent) and purchases of passenger vehicles (+6.1 per cent) also contributed to year-over-year inflation growth.
  • Seasonally adjusted inflation went up 0.5 per cent in October, up from 0.4 per cent in September.
  • The average of the Bank of Canada’s three core inflation measures stayed flat in October at 2.7 per cent. CPI-trim remained at 3.3 per cent, CPI-median sat at 2.9 per cent, and CPI-common stayed at 1.8 per cent (the same year-over-year growth rates as in September).

Key insights:

  1. If any good is coming of inflation this year, it’s that the vocabulary of Canadian economists is being refined. We’re now familiar with all the nuances that “permanent,” “transitory,” and “transitory but not short-lived” can imply. Semantics aside, it’s difficult to make the case that inflation is transitory. After all, the Bank of Canada is forecasting inflation to be 3.4 per cent this year and in 2022 – well above its upper target range of 3 per cent.
  2. October’s inflation numbers come as no surprise. The causes of higher prices are many. Consumer demand remains strong, and production costs are being pushed upward by elevated shipping costs and worker shortages. It’s a textbook case of too much money chasing too few goods. Almost all product categories have been affected, especially transportation and energy prices, both of which have a cascading effect on other prices. Even the weather has conspired against food prices after devastating droughts and heat waves slashed harvests in Canada.
  3. Prices will ease as the Bank of Canada hikes interest rates next year and as supply catches up to demand. Still, prices are likely to be hovering above 3 per cent for much of next year. Thankfully, the current inflation situation more closely resembles the postwar period, where high inflation fell back to earth after a couple of years of unleashed pent-up demand and supply chain hiccups, rather than the stagflation of the 1970s. But historical comparisons can only take us so far. The truth is that Canadians are likely to face elevated prices for many months to come.

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Kiefer Van Mulligen

Kiefer Van Mulligen


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