Canada's inflation rate is expected to remain high when Statistics Canada releases its October consumer price index report next week. Economists predict the annual inflation rate rose to 3.2 per cent in October, up slightly from 3.1 per cent in September, according to a Reuters poll. The key question now is whether rising energy costs will drive broader price increases, potentially prolonging high inflation and prompting further interest rate hikes.
LJ Valencia, an economist with Desjardins Economics, warns that persistently high energy costs could push up prices across the economy. He expects October inflation to be 'similar or perhaps slightly higher' than September, noting that businesses have absorbed rising energy costs so far but may soon pass them on to consumers.
However, CIBC Capital Markets economists Avery Shenfeld and Helen Lao argue that higher business costs won't necessarily translate into higher consumer prices. They believe weak consumer demand and healthy profit margins will force businesses to absorb some of the higher costs, reducing the urgency for further interest rate hikes. The Bank of Canada expects inflation to stay above three per cent through much of 2027.
RBC economist Salim Zanzana highlights regional differences in inflation, noting that higher energy costs are hitting Atlantic Canada particularly hard due to its reliance on home heating oil. Meanwhile, inflation remains lower in provinces like Ontario and British Columbia, where economic conditions are weaker. The Bank of Canada raised its key interest rate to 2.5 per cent on Oct. 28, its first increase in over three years, amid concerns about broader inflation.