Yahoo Finance Canada's inflation rate sticks at 3.1 per cent in November, above economist expectations
Canada's annual inflation rate unexpectedly held steady at 3.1 per cent in November, Statistics Canada said on Tuesday, reinforcing the challenge before the Bank of Canada in bringing inflation to its target of 2 per cent.
Economists had expected the Consumer Price Index (CPI) to decelerate to an annual rate of 2.9 per cent in November, a drop from 3.1 per cent in October. On a monthly basis, CPI increased 0.1 per cent, matching the monthly rise posted in October.
The surprise stall in inflation "drives home the point that we still have an inflation fight on our hands—in case there was really any doubt," said BMO chief economist Douglas Porter.
"(The) bigger picture remains intact: The underlying inflation trend is lower, the economy is chilly, and the Bank is expected to begin trimming rates around mid-year," Porter wrote in a research note on Tuesday, adding that the results will not come as a big shock to the central bank.
"Still, the latest result reinforces the message that markets had been a bit aggressive in their pricing of early and often rate cuts."
Bank of Canada Governor Tiff Macklem said in an end-of-year speech last week that the central bank needs to see evidence that "inflation is on a sustained downward track" before it can begin discussing cutting its benchmark rate. He said the central bank's Governing Council has not yet discussed rate cuts.
"We're not there yet," Macklem said at a press conference after his speech on Friday. "Inflation is coming down, but that's not assured and risks remain."
Money markets trimmed their expectations for monetary policy easing, with the chances of a cut next month dipping to 16 per cent from 21.4 per cent. Markets still expect the central bank to begin easing as soon as April.
Royce Mendes, Desjardins' managing director and head of macro strategy, wrote in a research note on Tuesday that the November report "represents less progress in taming inflation than we had expected." However, he added that "there are still a number of signs pointing to a further normalization in underlying price pressures" noting that, excluding shelter costs, inflation was just 1.9 per cent in November.
Two of three measures of core inflation, closely watched by the Bank of Canada, were steady compared to October, with CPI-median and CPI-trim unchanged at annualized rates of 3.4 per cent and 3.5 per cent, respectively. CPI-common was the only measure to drop, declining from 4.2 per cent in October to 3.9 per cent in November.
"Headline inflation failed to ease as expected in November, but softer readings on its core measures compared to earlier in the year should still give the Bank of Canada some comfort that underlying trends are headed in the right direction," CIBC economist Andrew Grantham wrote in a note on Tuesday.
November's steady rate of inflation saw higher prices for travel tours offset slower price growth for groceries, and lower prices for cellular services and fuel oil.
Prices for travel tours surged 26.1 per cent year-over-year in November, mainly due to events held in destination cities in the United States. At the same time, Canadians paid 22.6 per cent less for cell phone plans in November than during the same time last year, as "a variety of promotions" ahead of Black Friday lowered prices, Canada's federal data agency said.
Food price growth slows, but still above headline CPI
Food prices remain stubbornly higher than headline inflation, with the cost of food purchased from stores up 4.7 per cent year-over-year in November. However, that was a slower pace than in October, when food prices rose 5.4 per cent annually.
"This marked the fifth consecutive month that grocery price growth slowed year over year, with prices for non-alcoholic beverages (-0.6 per cent), fresh vegetables (+2.5 per cent) and other food preparations (+6.4 per cent) contributing the most to the slowdown," Statistics Canada said.
Energy prices fell 5.7 per cent on a year-over-year basis in November, compared to an annual decline of 5.4 per cent in October. The slowdown was led by lower prices for fuel oil, which fell 23.6 per cent annually, helped by the temporary suspension of the federal carbon tax on fuel oil.
Statistics Canada also released the latest population data on Tuesday that showed another potential near-term challenge for the Bank of Canada's fight to tame inflation. Canada's population grew by more than 430,000 in the third quarter, the highest growth rate in any quarter since 1957, bringing it to 40.5 million as of Oct. 1.
"As the Bank of Canada tries to rein in inflation, the headcount surge is boosting demand for goods and services and risks further inflaming price pressures," Desjardins principal economist Marc Desormeaux wrote in a research note.
"That said, the data don't change our call that the Bank of Canada will hold interest rates steady in January and eventually cut by mid-2024. The Canadian economy is clearly weakening under the weight of sharply higher interest rates."
Statistics Canada will release the latest GDP figures on Friday.
With files from Reuters.
Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.
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