Canadian CPI falls to 1.9% in November
The pace of Canadian inflation ticked down slightly in November – a cheerful development for both consumers and the Bank of Canada as we head into the holiday season.
According to Statistics Canada, the Consumer Price Index (CPI), fell to 1.9% year over year, down from 2% in October, and unchanged on a monthly basis.The decrease was largely due to dropping mortgage rates; Canada’s central bank has been steadily slashing borrowing costs since June, bringing its benchmark overnight lending rate down to 3.25% in December, from its previous 5%.
As a result, mortgage interest costs – one of the heftiest contributors to the CPI basket of goods – dropped for the 15th consecutive month, coming in at 13.2% after rising 14.7% in October. This contributed to overall shelter costs slowing to 4.6% year over year, following last month’s 4.8% uptick. Rent costs, however, continued to spike at 7.7%.
Canadians still squeezed by grocery costs
Overall, the inflation numbers show that while price growth is slowing, Canadians are still struggling with elevated costs. For example, grocery prices rose 2.6%, down a pinch from 2.7% in October; but while food inflation has cooled considerably over the past year, it’s still up a scorching 19.6% compared to the same time period in 2021.
Gas prices also dropped, though at a slower pace, by 0.5% compared to 4% in October. According to StatCan, this decline was the result of the base-year effect, as gas prices fell 3.5% in November 2023. On a monthly basis, they were unchanged.
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Other factors that slowed inflation include travel prices, which fell 6.7%, as well as Black Friday sales.
“These discounts partially contributed to lower prices across several major components, and were particularly notable in the household operations, furnishings and equipment, as well as the clothing and footwear indices,” writes StatCan.
What does the November inflation report mean for the Bank of Canada?
The BoC is tasked with keeping Canada’s inflation rate at a target of 2%, and must take action if it falls or grows too far beyond this threshold. If inflation is growing too swiftly – as it did between 2022 and 2023, following the end of pandemic lockdowns – the central bank hikes interest rates, which in turn cools consumer activity and borrowing. On the flip side, inflation that’s too low signals a weak economy. The BoC can address this by cutting interest rates, which incentivizes spending. The BoC most recently cut its benchmark interest rate by 0.5% on December 11, largely citing stable inflation.
That November inflation came in just a smidge below 2% means the BoC can be confident its current rate strategy is working, and gives it room to continue to cut rates further. However, the “core” measures of inflation that the BoC follows – the CPI trim and median – both remained unchanged at 2.7 and 2.6% respectively.
Should these measures remain sticky in the coming months, it could lead to the BoC taking a pause on rate cuts, writes Douglas Porter, Chief Economist and Managing Director of Economics at BMO.
In an economic note published after the inflation release, he points out that the BoC has forecasted that these measures of core inflation should hit 2.3% in Q4 – but they’re tracking above that, at 2.65%. There are also growing doubts that the US Federal Reserve (the BoC’s American counterpart) may cut its own rate at a slower pace than initially expected. Should the two central banks deviate too far from each other on rates, it would further weaken the Loonie, and drive Canadian inflation higher.
“In a nutshell, this report reinforces the point that the Bank will now turn to a more gradual path for rate cuts as we head into 2025,” he writes. “While we expect a further trim on January 29, another meaty set of core readings next month will prompt some chattering about a pause, especially with the Fed seemingly headed that way in January and the loonie on the ropes.”
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Penelope Graham, Head of Content
Penelope has over a decade of experience covering real estate, mortgage, and personal finance topics and her commentary on the housing market is featured on both national and local media outlets.