Consumer price inflation took a small step down in November, to 6.8% year-on-year (y/y), after holding steady at 6.9% through September and October.
Canadians got some relief at the pumps in November, with prices down 3.6% m/m, after prices surged 9.2% in October. However, gasoline prices are still up 13.7% versus a year ago.
Food inflation was back on the rise in November, up 10.3% y/y, up from 10.1% in October. Food purchased from stores was up even more versus a year ago at 11.4% y/y.
On net, underlying inflation pressures appeared to have picked up slightly in November. CPI ex-food and energy was 5.4% higher versus a year ago, a tick higher than 5.3% in October. Perhaps more importantly, the two measures that the BoC has indicated provided a more timely gauge of underlying inflation through the pandemic – CPI-trim (stayed steady at 5.3% y/y) and CPI-median (picked up to 5.0% y/y from 4.9%) showed no signs of cooling.
Shelter inflation accelerated again in November, up 7.2% y/y from 6.9% y/y. Upward pressure came from higher mortgage interest costs (+14.5% y/y) – which saw the highest increase since 1983 – and rents (+5.9% y/y versus 4.7% in September). Inflation for homeowners’ replacement cost did cool to 5.8% y/y thanks to a slowing resale market.
Key Implications
Today’s inflation report was a step in the right direction, in line with our forecast for a gradual cooling in inflation over the coming year. Core inflation pressures have been somewhat slow to cool, but are roughly consistent with our December forecast. Canadian consumers are showing signs of strain under the weight of high inflation and higher interest rates, with retail sales losing momentum in recent months. This is expected to translate to softer price pressures, which are starting to show up in categories like furniture and clothing.
The Bank of Canada will get to see another inflation report before their next interest rate announcement at the end of January. With the battle against inflation not yet won, we expect the Bank to hike a quarter point, and then take a pause to assess the cumulative impact of a year of dramatic tightening on the economy.
