Canadian property taxes posted their largest year-over-year increase in 32 years in October, Statistics Canada reported.

The sharp 6% rise outpaced the 4.9% increase recorded in October 2023. StatCan calculates property taxes annually in October,

The increase was felt nationwide, with Newfoundland and Labrador experiencing the steepest jump at 9.7%, followed by British Columbia at 8%. The rise in property taxes and special charges is influenced by factors such as rising home assessments, municipal and provincial tax rates, specific service charges, and the availability of homeowner tax rebates, said StatCan.

The unexpected surge in property taxes coincided with a 40-basis-point rise in inflation to 2% as the Bank of Canada’s prepares to make its upcoming interest-rate decision. The 2% mark is within the BoC’s target range but the rise was unexpected.

The central bank has already cut rates four times this year, to 3.75% from 5% to spur economic growth. But the BoC now faces uncertainty regarding the size of its next move.

Economists are wondering whether the bank will introduce a second consecutive 50-basis-point cut to match its October reduction. The bank has a long history of making 25-bps cuts outside of unusual financial times.

“This heavy result should take some more steam out of the call for another 50 bp rate cut from the Bank of Canada in December,” wrote Douglas Porter, chief economist at BMO, in a research note. “We have been in the 25 bp camp from the start and this report only reinforces that expectation.”

Following the inflation report, the likelihood of a 50-bps cut in December fell to 24% from 44%, according to trading in overnight interest swaps, the Star reported. A 25-basis-point cut is now fully priced in.

Derek Holt, an economist at Scotiabank, said upcoming GDP figures could sway the decision.

“If GDP surprises positively then that would reinforce this scaling back from 50,” he wrote in a research note, leaning towards a smaller cut. “If it surprises negatively, then it may add to pricing.”

While property tax increases grabbed attention, the pace of shelter cost growth continued to ease. Shelter prices rose 4.8% year-over-year in October, down slightly from 5.0% in September. Mortgage interest costs, a significant driver, rose 14.7%, marking a deceleration from 16.7% the previous month.

Rental prices followed a similar trend, increasing 7.3% in October compared to 8.2% in September. Nova Scotia and Manitoba saw the most significant deceleration in rent hikes, though rental prices remain elevated, up 21.6% compared to October 2021.

“Although this report will be a disappointment for the Bank of Canada, it follows a string of reports that showed more progress than expected,” wrote CIBC economist Katherine Judge, the Star reported.

But Judge maintained her forecast for a larger rate cut.

Canadian Chamber of Commerce Senior Economist Andrew DiCapua called the inflation target “a sweet spot” but emphasised broader economic challenges.

“With upcoming GDP data expected to show weak economic growth, a 0.5% rate cut seems likely,” he said, according to the Star.

James Orlando, a TD director and senior economist, said the StatCan data reinforced the message that the BoC’s goal of stabilization will not be a smooth path.

Rising shelter, food and healthcare costs drover the overall inflation increase.

Having previously raised rates 10 times between March 2022 and mid-2023 to combat inflation, the BoC is now focused on stimulating economic growth through cuts.

“We think that a 25 bp cut remains the most likely outcome, especially given the resilience that the economy has demonstrated over the last few months,” wrote Orlando.