This was a mixed inflation report on the heels of the Bank of Canada’s jumbo rate cut decision last week.

The overall inflation rate* in Canada nudged down to 1.9% (from 2%) in November, keeping the Bank of Canada near its 2% target. In every month this year, inflation has held within the Bank’s 1-3% control range. The report narrowly beat consensus expectations of a 2% reading.

That’s the good news. The hesitation for the Bank may come from stickier core inflation readings (see below).

More details:

Beyond gasoline  - Gasoline prices were below year-ago levels, but they fell at a slower rate. Other components had to do more of the work bringing inflation down, with mortgage interest and travel costs contributing the most to the deceleration. Notably, CPI excluding gasoline came in at 2% year-over-year (y/y).

Sticky trend - Core readings of inflation, which attempt to capture underlying trends, are proving to be more stubborn. The two key indicators—median and trim—rose by 2.6% and 2.7% y/y, respectively. For both gauges, the three-month measure** pushed above 3%.

Less pressure from shelter - A major development over the last few months is that shelter costs have been growing at a slower rate. In November they rose 4.6% y/y—the lowest since mid 2021. The Consumer Price Index (CPI) excluding shelter costs grew only 0.8 y/y. Excluding mortgage interest costs, the CPI was up 1.3% y/y. Mortgage interest costs rose 13% y/y, down from the peak of 31% in the summer of 2023. This measure is heavily influenced by monetary policy, and will continue to ease as the Bank cuts.

Food - still expensive - Food is not the same inflation driver as it was, but prices remain stubborn. Grocery prices rose 2.6% year-over-year, and are up more than 24% since January 2021.

Implications:

For the most part, this report reinforces last week’s Bank of Canada move, and will keep the Bank in easing mode heading into the new year. But with still-sticky core inflation readings, this report points to a more gradual pacing of easing—something the Bank signaled last week. Jumbo cuts look to be done in this cycle, and nothing in today’s report should change this view.

With inflation under control and the economy still running at excess supply, we continue to see three more 25 basis-point cuts, bringing the policy rate to 2.5% by the summer.

Alberta inflation declines slightly, but holds above national rate

Alberta’s annual inflation rate also fell last month, moving from 3% to 2.8%, but continued to hold above the national average.

Shelter costs continue to put more pressure on Alberta’s CPI. They rose 5.6% y/y (outpacing the 4.6% national increase). With a tighter housing market and faster population growth, rental accommodation costs were 11.0% higher than a year ago—faster than the 7.3% national increase. Utility costs were lower than a year ago, driven down by electricity. But the y/y decline moderated from last month, putting upward pressure on the overall inflation rate.

Gasoline prices were also higher than a year ago (+6.9%), compared to a small national decrease (-0.5%), in part due to the reinstatement of the fuel tax following a pause in 2023 and most of 2022. This measure has a temporary effect on inflation, lowering inflation readings in 2022-2023 and raising them in 2024.

The breakdown for the two largest centers in Alberta shows Calgary’s inflation rate at 3% vs. 2.7% in Edmonton last month.

Excluding energy and food prices, Alberta’s core inflation rate was 3% vs. 1.9% nationally.

*The inflation rate is the year-over-year percent change in the unadjusted monthly Consumer Price Index.

**Month-over-month changes in the 3-month moving average, annualized.

As 2024 slides into our collective rearview mirror, our trivia questions for the rest of December are looking back at the most important economic trends of the year. Enjoy our 12 Days of Economic Trivia for 2024.

Answer to the previous trivia question: According to Bank of Canada’s Senior Deputy Governor Carolyn Rogers, Canada is in the midst of a productivity emergency. Labour productivity has been persistently higher in Alberta than in the other provinces.

Today’s trivia question: Rapid population growth has created a need for more housing in Alberta with household formations outpacing new construction. How many housing starts in Alberta are in the forecast for next year?