Highlights:
- CPI inflation eased to 1.7% in November from 2.4% in October.
- Ex-food & energy price growth slowed to 1.7% from 2.1% year-over-year. The Bank of Canada’s preferred core measures moderated, on balance, with the ‘median’ and ‘trim’ measures ticking down to 1.9%.
Our Take:
The bulk of a drop in the headline year-over-year CPI rate to 1.7% — the first reading below the Bank of Canada’s 2% inflation target since January — was accounted for by a largely as-expected pullback in gasoline prices. Underlying trends outside of some of the more volatile components held largely intact, although with some moderation in ’core’ measures. Price growth excluding food & energy products eased to 1.7% from a year ago from 2.1% in October. The Bank of Canada’s preferred ’trim’ and ’median’ core measures edged down slightly to 1.9%, with the ’common’ measure holding unchanged from October, also at 1.9%. The tick lower in the median and trim measures was also not entirely unexpected with above-trend month-over-month increases a year ago falling out of the year-over-year calculations. The core measures still leave underlying price trends running right around the Bank of Canada’s target inflation rate.
Energy prices will continue to weigh on the headline CPI measure with oil prices holding below year-ago levels. Looking through monthly wiggles, there is little indication of shifting underlying inflation trends, which seem to remain right around the central bank’s target. At the same time, there is little evidence of significant upside pressures building. Lower energy prices have created concern about near-term economic growth and higher interest rates and regulatory measures to-date already seem to have been effective at slowing household spending. We continue to expect further gradual rate hikes will ultimately be necessary, but recent softer growth numbers reinforce that the next increase probably won’t come from the Bank of Canada’s January policy decision.
