Canadian consumer price inflation lost momentum in November, slowing to 1.7% year-on-year (y/y), from 2.4% in November. The reading came in a hair below the consensus forecast for 1.8%. Adjusted for seasonal patterns, prices declined 0.2% month-on-month.
The bulk of the slowdown in inflation was due to energy prices. With gasoline prices falling 9.4% on the month, the energy price index was down 1.3% relative to its level a year ago (compared to a 7.9% gain in October). Excluding energy, inflation edged lower to 1.9% y/y from 2.0% last month.
Price growth slowed in six out of eight major categories with only food, alcohol & tobacco bucking the trend. The largest slowdown was in household operations (0.9% y/y from 1.3%), clothing and footwear (0.6% y/y from 1.3%) and recreation and education (1.2% from 1.8% y/y).
Among broader aggregate categories, prices of goods grew substantially slower than a month ago, advancing by just 0.5% y/y (compared to 2.2% growth in October). Meanwhile, services sector price growth remained steady at 2.7% y/y.
Two of three of the Bank of Canada’s core measures edged lower on the month, with CPI-median and CPI-trim slowing to 1.9% (from 2.0% and 2.1%, respectively). CPI-common was unchanged at 1.9%, the level it has been at since February.
Key Implications
Markets were expecting headline inflation to soften in November, and soften it did. Much of the slowdown can be chalked to decline in energy prices, but inflationary pressures were subdued elsewhere.
Looking beyond inflation, a downshift in energy prices and oil output curtailment in Alberta are expected to have negative implications for economic growth in both Canada and Alberta. The direct impact to Canadian real GDP growth in 2019 is estimated to be a reduction of about 0.15 percentage points, with only a partial recoup expected in 2020. For Alberta, the impact is larger, at 0.9 percentage points. For more details, please check our latest provincial and national economic forecasts.
The Bank of Canada is not done raising rates, but with both core and headline price growth appearing soft and risks to the economy skewed to the downside, there is little urgency. As such, we expect just two rate hikes in 2019, with the next increase likely not coming until the spring
