Canada’s annual inflation remained stable in November, sitting slightly below the Bank of Canada’s 2% target, although economists expect some volatility in the coming months.
The consumer price index rose 1.9% year over year in November in Canada, just shy of the 2% increase seen in October.
“Generally speaking, a range of 1 to 3% is very appropriate for the mission of the Bank of Canada,” underlined Royce Mendes, managing director and head of macroeconomic strategy at Desjardins Capital Markets, during an interview.
“With headline inflation sitting just a little below 2% and core inflation a little above 2%, there is little to worry about in this report,” he said. -he added.
Data released Tuesday showed the Bank of Canada’s core inflation measures remained stable at 2.6 and 2.7 per cent.
The general slowdown in inflation comes as goods price inflation comes to a halt, while strong wage growth and rising housing costs continue to push up service prices.
Inflation has been hovering around the 2% target for several months now, paving the way for the Bank of Canada to lower interest rates.
After making a second straight half-percentage-point cut last week, Bank of Canada Governor Tiff Macklem indicated there would be more rate cuts, but the central bank would probably reduce its magnitude.
The central bank’s key interest rate now stands at 3.25%.
However, it will be difficult for policymakers to determine the underlying trend in inflation over the coming months, with December figures slowed by the GST holiday on some goods and services, said Andrew Grantham, senior economist at the CIBC, in a note to clients.
The federal government announced last month that it would waive the Goods and Services Tax (GST) on certain items between December 14 and February 15.
Prices, a double-edged sword
Longer-term factors, including Donald Trump’s threat to add 25% tariffs on Canadian goods, could impact inflation in the coming months.
Mr. Mendes called the potential tariffs a double-edged sword for inflation.
“On the one hand, they would weaken the Canadian economy and dissipate price pressures to the extent that the economy operates below its potential,” he noted. On the other hand, if Canada launches retaliatory tariffs, consumer prices could increase in Canada. »
Mr. Mendes pointed out that Black Friday sales helped dampen overall price growth in November.
“It seems like there was a lot of Black Friday sales in the equation,” he said.
Prices for cellular services and furniture, down 6.1% and 2.1% respectively, pushed the furniture and equipment index down 0.9% in November, Statistics said Canada.
Deep discounts on clothing and shoes also brought prices down 0.8% compared to last year, according to the report. The monthly decline in children’s clothing was the largest on record for the month of November.
Discounts in place at many stores “suggest that retailers are prepared to offer sales during the holiday season as consumers have approached the spending season with a little more caution,” Mendes said. .
Food prices continued to grow faster than prices overall, increasing 2.6% from last year.
Mr. Mendes said that some elements of depreciation of the Canadian dollar could manifest themselves in food prices, such as those whose components are largely imported. The Canadian dollar slipped below 70 cents US on Tuesday, continuing a decline that began in October.
However, it is not a major factor in general, he noted, saying that for “overall prices, currency depreciation probably has only a marginal impact.”
Housing costs increased at a slower annual rate of 4.6%.
Growth in mortgage interest costs continues to account for a significant portion of remaining price pressures, but is expected to moderate following interest rate cuts, RBC economist Claire Fan said in a note to clients.
Rent inflation, which accelerated to 7.7% in November, is expected to slow in the coming months, she said.
“We do not expect this trend to continue, as market asking rents continue to fall, and point to lower average rents with a certain lag,” said Mme Fan.
In Quebec, annual inflation increased from 1.6% in October to 1.5% in November. Growth in the consumer price index also slowed in Ontario, Manitoba, Alberta and British Columbia.
Inflation accelerated compared to October in the four Atlantic provinces, while it remained stable in Saskatchewan.
