Inflation drops to 0.7% with cheaper gasoline prices

A decline in the price of gasoline helped push Canada's inflation rate down to 0.7 per cent in October, Statistics Canada said Friday.

Economist sees little reason to expect Bank of Canada to raise interest rates in next year

Gas prices were lower in October 2013 than they were in the same month a year earlier. (Canadian Press)

A decline in the price of gasoline helped push Canada's inflation rate down to 0.7 per cent in October, Statistics Canada said Friday.

The price of gasoline was 4.3 per cent cheaper last month than a year earlier, the data agency said. All provinces saw declines, with Saskatchewan (down 8.6 per cent) recording the largest year-over-year decrease and Ontario (down 1.8 per cent) the smallest.

At 0.7 per cent, the rate was lower than what economists were expecting — and down four points from the 1.1 per cent level seen last month.

Besides gasoline, five of the eight categories that Statistics Canada tracks were higher, so cheaper gasoline wasn't enough to drag the overall inflation rate into negative territory.

Prices for alcohol and tobacco products saw the largest increase, but Statistics Canada said higher shelter and food costs led the rise in the consumer price index.

The Bank of Canada strips out volatile items such as food and energy in what's known as the "core rate." By that metric, the inflation rate also dropped, but not by as much — from 1.3 per cent in September to 1.2 last month.

Within acceptable range

That's the one the central bank pays more attention to in setting its interest rate. The bank sets rates with a goal of keeping inflation between one and three per cent. So while it's on the low side, it's still within the acceptable range.

The Bank of Canada cited the persistent low inflation for its decision last month to jettison a long-standing bias toward raising interest rates. The change suggested governor Stephen Poloz and his advisers were worried that the economy was weaker than previously thought.

It's doubtful that October's surprisingly low inflation rate will, by itself, cause the central bank to consider a rate cut in next month's policy announcement.

"There’s little reason to believe that CPI will pick up meaningfully anytime soon," BMO economist Doug Porter said in a note following the release of the data. "In that environment, there’s also little reason to believe the Bank of Canada will even consider raising rates anytime in the next year."


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