Canadians aren’t getting much relief on inflation for Christmas this year, with CPI inflation remaining at 3.1% on a year-on-year (y/y) basis in November.
For headline inflation, Statistics Canada cited that higher prices for travel tours (+26.1% y/y,) due to events held in destination cities in the U.S. (potentially due to Formula 1 in Vegas) offset slower price growth for food and declines for cellular services (-22.6% y/y), and fuel oil.
Food inflation slowed to 5% y/y in November from 5.6% in October. That is the fifth consecutive month food inflation has slowed, but that is unlikely to be perceptible when people are buying their turkeys or potatoes.
Energy prices were down 5.7% y/y in November thanks to the temporary suspension of the federal carbon levy on fuel oil, which drove prices 23.6% lower than a year ago. While an increase in time of use rates for electricity in Ontario lifted electricity prices to 8.2% y/y versus 6.7% in October.
Services prices remained elevated in November, up 4.6% y/y in November, matching October’s pace. The heavily weighted shelter component took a small step in the right direction, cooling to 5% y/y in November (vs. 5.6% in October).
The Bank of Canada’s underlying inflation measures were unchanged at 3.5% for CPI trim, and 3.4% for CPI median. However, the news was better when you zero in on the three-month annualized pace, which have fallen to 2.3% for CPI median and 2.6% for CPI trim. This suggests the year-on-year pace of inflation should head lower over the coming months.
Key Implications
The Bank of Canada got a real mix in their inflation stocking this month. There were a few lumps of coal in the form of no progress on headline inflation, and continued strength in services inflation. But, when they dig down to the bottom of the toe there is a shiny bauble – that their preferred core inflation measures averaged just below 2 ½% on a annualized basis over the past three months, the slowest pace since the beginning of 2021.
Governor Macklem may be humming All I want for Christmas is two (percent), but he is going to need to wait a little longer for that gift. Canada’s economy has cooled in recent months, and inflation is slowly feeling the chill. We expect weaker demand in the economy will gradually see inflation come down enough for the Bank of Canada to cut rates in the second quarter of next year (see our latest forecast).
