Inflation ticked up to 2% in October after previous month's steep drop in gas prices

Canada's inflation rate ticked up to two per cent in October, Statistics Canada said on Tuesday. The consumer price index had previously hit 1.6 per cent in September, thanks to a steep decline in gas prices.

Gas prices fell again in October, although to a lesser extent — and with gasoline excluded, all-items inflation came in at 2.2 per cent, the same as in September and August.

Property taxes also drove headline inflation up, with the highest yearly increase since 1992, rising six per cent compared to a 4.3 per cent increase during the same period a year before.

October's CPI uptick marks the first time that the annual inflation rate has increased since May, although this was largely expected after the previous month's sharper-than-expected drop.

"It's not a shock by any means, but I think it is a little dose of reality that this isn't a one-way trip south for inflation," said Douglas Porter, chief economist at Bank of Montreal, in an interview with CBC News. 

"I'd say the two big factors here were a big annual increase in property taxes and a bit of a backup in gasoline prices. Other than that, inflation actually did remain relatively moderate."

WATCH | Here's what an inflation uptick means for you: 

Why Canada's inflation rate ticked up again — and what it means for you

11 days ago

Duration 1:50

Canada's inflation rate hit two per cent in October, an increase over the last month, but that doesn't mean that Canada is missing its target. CBC senior business reporter Armstrong breaks down why there's an uptick and the effect on Bank of Canada interest rate cuts.

The Bank of Canada's preferred core measures of inflation came in around the 2.5 per cent mark.

Grocery inflation rose at a faster pace in October compared to the same time a year before, outpacing overall inflation for the third month in a row. Higher prices for fresh vegetables and preserved fruit contributed to this trend.

Shelter inflation also cooled to 4.8 per cent on a yearly basis in October as mortgage interest costs and rents grew at a slower pace. 

While rent inflation has slowed, rent prices continue to rise, having increased 21.6 per cent compared to October 2021.

Central bank likely to cut rates, but by how much?

The Bank of Canada made a cut of 50 basis points last month, twice the size of its last few cuts, taking a victory lap after August inflation hit the central bank's longstanding two per cent target.

At that time, governor Tiff Macklem said to expect more rate cuts if the economy continues to evolve broadly in line with the bank's forecast. 

But he also warned that the timing and pace of cuts would depend on incoming economic data and its potential impact on the bank's inflation outlook.

"Given that this report follows a string of better news on inflation, and the fact that the GDP and employment data remain to be seen ahead of the December [Bank of Canada] decision, we still see a 50 [basis-point] cut as possible at the next BoC meeting," wrote Katherine Judge, an economist at CIBC.

Porter thinks the central bank will likely make a smaller cut at its next meeting on Dec. 11, with Tuesday's numbers showing little need for an aggressive cut, he said.

"I think they're probably looking for something a little bit milder. This will be a small disappointment to the Bank of Canada, but no one single indicator will usually drive Bank of Canada policy. They'll look at the bigger picture," he said.