Highlights:
- Headline CPI inflation picked up to 2.1% year-over-year from 1.4% in October. November’s was just the fourth reading of 2% or more in the last three years.
- Higher energy prices accounted for almost 1/2 percentage point of the increase in headline inflation.
- Core inflation also increased in November with the ex food and energy measure picking up to 1.8% year-over-year, a nine-month high.
- There wasn’t much evidence of steeper Black Friday discounting as prices for clothing and footwear fell by less than in recent years. The decline in home entertainment prices was in line with years past.
- Two of the Bank of Canada’s preferred core measures rose in November. An average of the three hit a one-year high of 1.7% in November.
Our Take:
With an upside surprise in November, headline inflation is running a bit hotter than the 1.4% rate the Bank of Canada penciled in for Q4. Some of the overshoot reflects higher oil prices and a slightly weaker Canadian dollar than they assumed in October. That wasn’t the whole story, however, as most measures of core inflation also picked up in November. In fact, two of the bank’s preferred core measures, trim and median, hit year-to-date highs and are rising at an annualized clip of more than 2% over the last few months. This firming in underlying price pressure is a development the BoC was betting on when they raised rates twice this summer even as spot inflation was trending well below their 2% target. Today’s report reinforces their bias to continue removing accommodation. We still see them holding off on raising rates until April when there is more clarity on Nafta and the impact of new housing measures. But these inflation numbers could serve as justification for an even earlier move.
