Jordan Press, The Canadian Press
Posted Wednesday, November 18, 2020 at 3:41 p.m. EST
OTTAWA – The country’s headline inflation meter jumped 0.7% last month from a year ago, the fastest rise in the consumer price index in months, largely because of rising food prices.
Increase in October compared to a 0.5% year-over-year increase in September.
The increase is almost entirely attributable to rising food prices, particularly lettuce and fresh or frozen chicken, Statistics Canada said on Wednesday.
The 25.6 percent annualized increase in the former was largely the result of supply issues. The latter’s 2.4% growth was linked more to uncertainty in the foodservice industry, which continues to bear the brunt of the COVID-19 pandemic.
Natural gas prices rose 11.6% in October compared to the same month in 2019, mainly due to a 12.5% ââincrease in Ontario.
Regionally, cigarette prices rose 14.9% year over year in Newfoundland and Labrador, the largest increase since June 2003, following an increase in taxes which started on October 1st.
October’s overall jump was the biggest increase since June amid an eight-month period where monthly readings were below 1%, held back by the change in shopping habits due to COVID-19.
Things are not expected to improve much, although retailers are hoping to entice shoppers to start the Christmas shopping season earlier.
BMO chief economist Douglas Porter said there will be a fierce price fight as companies balance the rising costs of public health measures while battling depressed demand.
Some industries may see significant price increases for hot items such as home gym equipment or outdoor furniture, but Porter said that would not be enough to push headline inflation up.
âWe have a real push-and-pull on the inflation front,â he said.
“We tend to believe that what dominates and what will dominate overall is the underlying weakness of the economy and which will tend to contain headline inflation.”
Statistics Canada noted that gasoline prices fell 12.4 percent in October from a year earlier. Excluding the decline in the calculations, the reading of headline inflation would have increased by one percent year over year.
Statistics Canada said new home prices rose in October at their fastest pace in 14 years, with falling mortgage rates coinciding with increased demand for single-family homes.
âAs lower interest rates reduce mortgage service costs, this is overwhelmed by higher costs for new homes,â wrote James Marple, senior economist at TD Economics, in a note.
Mortgage rates have been dragged down by the Bank of Canada’s key rate – currently at 0.25 percent – which is as low as the central bank says. He says the rate will stay there until inflation returns to 2%.
In October, the average of Canada’s three measures of core inflation, which are considered to be better indicators of underlying price pressures and closely monitored by the Bank of Canada, was around 1.8%.
CIBC senior economist Royce Mendes said core inflation figures suggest the relationship between consumer prices and the overall economy may be weaker than in the past.
This could force the central bank to allow the economy to revive a bit longer to help bring inflation back to its 2% comfort zone, he wrote in a note.
The central bank forecast last month that annual inflation would be 0.6% this year, 1% next year and 1.7% in 2022. The bank predicts that the economy will be in good shape at the earliest. able to handle higher rates in 2023.
This report by The Canadian Press was first published on November 18, 2020.