Headline CPI inflation cooled to 1.9% year-on-year (y/y) in November, one tick softer than expected.
Slower price growth was broad based across the eight major components. The one exception was transportation costs which rose to 1.1% y/y, from 0.3% in October.
Shelter inflation has been a key challenge for Canadians for some time now and cooled in November to 4.6% y/y, from 4.8% y/y in October. Mortgage interest costs were a key factor, as the year-on-year increased slowed from 14.7% to 13.2% y/y in November. Unfortunately, rent inflation continues to heat up, rising 7.7% y/y in November, up from 7.3% y/y in October.
The Black Friday deals were particularly good this year, keeping goods inflation flat both on the month and versus a year ago. Deals were to be had on cellular services (-6.1% m/m), furniture, clothing, and particularly children’s clothing.
The impact of Taylor Swift’s Eras Tour in Toronto in November was seen in hotel prices, which had their largest November increase ever in Ontario. This drove higher prices for traveller accommodation at the national level (+8.7% y/y). Check out our recent report on the spending impact of the concerts here.
The Bank of Canada’s preferred “core” inflation measures were steady at 2.7% y/y on average, matching October’s pace.
Key Implications
November’s inflation data came in line with the Bank of Canada’s expectations for inflation to average close to 2% over the next couple of years. Headline was only a tenth cooler than expected, but this was mitigated by a lack of progress in the Bank of Canada’s Core inflation measures.
Our forecast calls for headline inflation to rise somewhat above the Bank’s 2% target next year as likely tariffs raise goods costs (see forecast). However, we don’t expect that this is high enough to dissuade the BoC from cutting interest rates further. With an America-First agenda south of the border, Canada’s economy faces a challenging backdrop, and lower interest rates are required for support. That said, at 3.25% on the overnight rate, we are now at the edge of “neutral” territory, further cuts are expected to come at a more measured pace next year.
