Heading into the holidays, the hope was for a little less inflation. That maybe the last inflation reading of the year would show a movement back inside the Bank’s  “inflation-control target range” of 1 to 3 percent.

That didn’t happen. The annual inflation rate* for November held steady at 3.1% for the second straight month in Canada. This was higher than market expectations (the Bloomberg median estimate was 2.9%). 

Getting into the details, Statistics Canada points to higher prices for ‘travel tours’ offset by lower cellular service prices, declines in fuel oil prices and softer gains in food costs.

Looking past monthly volatility, measures of annual core (or trend) inflation held above the 3% mark. The trim measure sits at 3.5% year-over-year (y/y) and the median at 3.4% - both unchanged from October. However, there has been progress if you exclude base year effects. On a 3-month moving average basis, trim and median prices rose an annualized rate of 2.6% and 2.3% (respectively), both easing for the third straight month. The Bank of Canada has emphasized they are looking at the core measures of inflation, which have been more sticky.

Shelter remains a stubborn inflation driver. The rental index was up 7.4% y/y while mortgage interest costs (+29.8% y/y) remained a big contributor. Food prices are still very high, but are adding less to inflation. Grocery prices rose 4.7% y/y, the smallest annual gain in two years. 

In Alberta, annual inflation edged up from 2.1% to 2.5%, though remained below the national average for the tenth month this year. Electricity prices have eased considerably after a summer run-up (though still well above 2022 levels), while gasoline prices fell. Rental costs, however, continue to add more to inflation, accelerating to 10.5% y/y.  Excluding energy and food (yet another measure of ‘core’), prices were up 2.5% y/y (vs. 3.5% nationally). 

One month doesn’t make a trend, but today’s report is a reminder that the inflation fight is not over. While inflation has come a long way from its peak (8.1% in June 2022), the Bank will need to see more progress before moving its policy rate lower. In a recent speech , Governor Tiff Macklem said it's too soon for the Bank of Canada to consider cuts, with the Bank looking for more signs that we are “on a path back to price stability”. This means several sustained months of lower core inflation. A soft Canadian economy creates the backdrop for easing price pressures, and rate cuts can be expected next year. In our latest outlook (released last Tuesday) we see the Bank remaining cautious and on hold well into next year, before lowering its policy rate mid-2024. 

*measured as the year-over-year change in the Consumer Price Index

Answer to the previous trivia question: The year was 1908 when Sears issued its first specialty catalog for “mail-order” houses.

Today’s trivia question: Does the Consumer Price Index include sales taxes?