Inflation showed an unexpected increase in October due to the housing sector

Last month, Canada’s inflation reported an unexpected gain, driven partially by higher home ownership costs.

According to Statistics Canada, annual inflation was up by 0.2% from September to 0.7% in October. Meanwhile, economists surveyed by Bloomberg predicted 0.4%. The report says an index of replacement costs for homeowners showed the largest increase in 30 years.

Nevertheless, the price pressures are still restrained, as Canada is trying to cope with the consequences of the pandemic and a new wave of restrictions. The central bank believes a significant economic weakness and a slowdown at the labor market will keep inflation below its target of 2% until at least 2023. It will allow to keep interest rates historically low for the nearest future.

“October was quite a surprise in terms of Canadian inflation,” – noted Doug Porter, chief economist at the Bank of Montreal. “However, the inflation is still below 1%, and it will probably remain there for some time, as the economy will face more challenges amid the new restrictions.”

The increase reduces a gap between inflation in Canada and inflation in the U.S., which has been floating around 1%.

The homeowners’ index was up by 1.4%, marking the largest monthly gain since June 1991.

The report says prices were up by 0.4% from September, while economists predicted a 0.2% rise. The main growth drivers were food and shelter costs.

Core inflation, which is considered to be a better gauge of price pressures, saw a slight rise from 1.7% in September to 1.77% last month, while economists expected 1.73%.