The Conference Board of Canada Economist Anna Feng offers the following insights on today's release of the Consumer Price Index (CPI):
“Inflation inched up 0.7 per cent in October thanks to increases in food and shelter prices. While the demand for clothing, travel and transportation remained suppressed, consumer prices continued to rise because of a pick-up in housing demand and limited supply of product amid the pandemic. We expect that inflation will continue to tick higher in the near term as the pandemic lingers and business operating costs remain elevated.”
- The October Consumer Price Index rose 0.7 per cent from a year earlier and was up from 0.5 per cent growth in September of this year.
- Muted gasoline prices continued to be the main source of drag on inflation in October. As the second wave of COVID-19 spreads across Canada, demand for transportation plummeted. As such, the year-over-year decline in gasoline prices sharpened to 12.4 per cent in October. Excluding gasoline, inflation inched up 1.0 per cent last month.
- Increases in food prices (up 2.3 per cent) last month boosted October’s inflation. Harsh growing conditions weighed on the supply of fresh vegetables, leading to a surge in the prices of tomatoes (up 41.2 per cent) and lettuce (up 25.6 per cent). Reductions in meat production, which started in May, also pushed meat prices higher. Notably, both poultry prices (up 3.2 per cent) and pork prices (up 3.4 per cent) increased significantly.
- As the pandemic lingers and people continue to stay at home, consumer demand for new clothes and travel remain subdued. As such, prices for clothing (down 5.6 per cent) and traveller accommodation (down 22.9 per cent) were muted in October.
- The homeowner’s replacement cost in October rose 3.6 per cent, its highest year-over-year growth since February 2018. Higher housing prices are a result of low inventories of housing, elevated lumber prices, and increased housing demand spurred by low interest rates.
- The average of Bank of Canada’s core inflation measures increased 0.1 percentage points to 1.8 per cent in October, moving it closer to the Bank’s 2.0 per cent target.
- Overall, the uptick in October’s inflation reflects the pick-up in consumer demand as well as limited supply of products amid the pandemic. While the demand for clothing and recreation remains soft, the price of food and shelter have significantly increased and helped to drive up inflation.
- We expect that inflation will continue to tick higher in the near term, supported by higher business operating costs during the pandemic.