Canada’s inflation rate is expected to remain high when Statistics Canada releases its October consumer price index report next Monday. Economists predict the annual inflation rate rose to 3.2% in October, up slightly from 3.1% in September, according to a Reuters poll.
The key debate among economists is whether rising energy costs will drive broader price increases, prolonging high inflation and potentially leading to further interest rate hikes. LJ Valencia of Desjardins Economics warns that persistently high energy costs could force businesses to pass on higher costs to consumers, keeping inflation elevated.
However, CIBC Capital Markets economists Avery Shenfeld and Helen Lao argue that businesses may absorb higher costs rather than pass them on to consumers. They believe weak consumer demand and healthy profit margins will prevent significant inflation, reducing the urgency for further rate hikes by the Bank of Canada.
The Bank of Canada expects inflation to stay above 3% through much of 2027 and aims to keep it at 2%. The central bank raised its key interest rate to 2.5% on October 28, its first increase in over three years, amid concerns about broader inflation. Economists are closely watching inflation figures for clues about the bank’s next move.
RBC economist Salim Zanzana notes that the impact of energy prices varies across Canada. Higher energy costs are hitting Atlantic Canada particularly hard, while inflation remains lower in provinces like Ontario and British Columbia due to weaker economic conditions.