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A motorist fills up his truck with gas in Toronto.Christopher Katsarov/The Canadian Press

Canada’s inflation rate held steady in October after slowing for three months, increasing the likelihood that the Bank of Canada will raise interest rates again in December.

The Consumer Price Index rose 6.9 per cent in October from a year earlier, matching the inflation rate in September, Statistics Canada said in a report on Wednesday. The result was in line with analyst expectations. On a monthly basis, consumer prices rose 0.7 per cent – just shy of the 0.8-per-cent increase that Bay Street analysts had predicted.

After hitting a near-four-decade high of 8.1 per cent in June, the annual inflation rate has eased somewhat, largely because gasoline prices have fallen from record highs seen in the aftermath of Russia’s invasion of Ukraine.

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But that dynamic shifted again in October. Gas prices jumped 9.2 per cent from September, which Statscan attributed to a weaker Canadian dollar and announcements of oil production cuts overseas. The increase in gasoline costs offset slowing price growth for other items, such as groceries and travel-related expenses.

Several analysts were encouraged by the underlying details in Wednesday’s report. For instance, core inflation (excluding food and energy) rose 0.2 per cent in October on a monthly basis, the slowest increase seen this year. Some other short-term indicators also suggest price growth is fading quickly. But inflation remains lofty, meaning the Bank of Canada will likely have to hike rates in December in order to bring it under control.

“Canadian consumers are obviously still feeling the pinch from high inflation,” said Royce Mendes, head of macro strategy at Desjardins Securities. “However, the underlying trend is slowing and would be consistent with maybe the Bank of Canada hiking rates just once more.”

Inflation holds steady at 6.9% in October. Here’s what that means for the cost of living in Canada

The Bank of Canada has raised its benchmark interest rate to 3.75 per cent from a pandemic low of 0.25 per cent in March, in its most aggressive rate-hike campaign in decades. Its next rate decision is on Dec. 7.

The central bank has said in several public statements that further rate increases will be needed to slow the economy and quell inflation. Financial analysts are divided over whether the bank will hike by 25 or 50 basis points next month. And they have also expressed differing views on where rates will peak in 2023. (There are 100 basis points in a percentage point.)

“The economy is in excess demand, the job market is too tight, and inflation is too high,” Bank of Canada Governor Tiff Macklem said last week in a speech. “Monetary policy has begun to have an impact, but it will take time for the effects of higher interest rates to spread through the economy and reduce demand and inflation.”

As borrowing costs have risen, Canada’s housing market has entered a slump. Those taking out loans or renewing their mortgages are facing higher costs that are crimping household budgets. The Statscan report showed that mortgage interest costs rose 11.4 per cent in October over the previous year, the largest increase since early 1991.

Rents, meanwhile, rose 4.7 per cent over the past year, marking the ninth consecutive month they have done so. The rental market is under pressure from strong population growth, home affordability challenges and decades without enough apartment construction.

Consumers saw a reprieve of sorts at the supermarket. Grocery prices climbed at an annual rate of 11 per cent, slowing from 11.4 per cent in September. Still, prices are growing near the highest rates in several decades. And the increases have been hefty for some staples: Over the past year, pasta prices have risen by 45 per cent, lettuce by 30 per cent and soup by 18 per cent.

Despite the recent moderation in general prices, paycheques continuing to lag behind inflation. In October, average hourly wages rose 5.6 per cent from a year earlier. This means the average worker is experiencing a decline in their purchasing power, leading many unions to bargain for better pay.

Mr. Macklem has recently warned that the labour market is overheating, and that unemployment will need to rise to help ease inflation. More than 100,000 jobs were created in October, erasing all the positions that were lost this summer. The unemployment rate held at 5.2 per cent, among the lowest seen in nearly five decades of comparable data. In this hiring environment, companies will often have to raise wages substantially to recruit workers.

“The tightness in the labour market is a symptom of the general imbalance between demand and supply that is fuelling inflation and hurting all Canadians,” Mr. Macklem said last week.

Labour groups have frequently criticized Mr. Macklem for what they perceive as him blaming workers for high inflation, rather than focusing on policy decisions or the corporate sector’s role in pricing.

Mr. Mendes projects the Bank of Canada will hike its policy rate once more in December, by 25 basis points, which would be the bank’s smallest move since March. This, he said, would come as a relief to households, many of which are highly indebted. He also cited risks for variable-rate mortgage holders, who are immediately affected by every increase in borrowing rates.

“For that reason, I think the Bank of Canada probably needs to be very cautious on taking rates materially higher,” he said. “And given that inflation is co-operating, they probably can step down to just a 25-basis-point rate increase.”