Inflation holds in November: What economists say

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November inflation numbers appear to confirm that Bank of Canada governor Tiff Macklem was right when he said last week that Canadians should expect some push and pull in the fight against high prices.

Canada’s annual inflation rate was unchanged last month, holding steady at 3.1 per cent, above the Bank of Canada’s target range. Analysts had expected the consumer price index would rise 2.9 per cent.

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Increases in the cost of travel kept inflation higher, offsetting slower growth in prices for food, cellular services and oil, Statistics Canada said Tuesday.

Macklem said in a speech on Dec. 15 that further decreases in price pressures will be gradual and that it is premature to talk about interest rate cuts.

The bank’s benchmark lending rate stands at 5 per cent — a 21-year high — following an aggressive hiking campaign by Macklem and his team to tame runaway inflation.

Here’s what economists are saying about the latest inflation numbers and what they mean for the Bank of Canada.

Andrew Grantham, CIBC Economics

“If there is any good news in today’s report it is the fact that, with drivers of inflation becoming more narrowly based than they were earlier in the year, the Bank of Canada’s preferred core measures of CPI-trim and CPI-median continued to show softer trends than earlier in the year at 3.5 per cent and 3.4 per cent year over year respectively. On a three-month annualized basis the core measures were softer, at 2.3 per cent and 2.6 per cent respectively. While readings on a three-month annualized basis are admittedly volatile, if such a trend were to persist for another few months it should give the Bank of Canada comfort that headline inflation is on a path back to target, opening the door for interest rate cuts starting in Q2 next year despite the upside surprise in headline inflation today.”

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Stephen Brown, Capital Economics

“It seems we cannot blame travel tours for stronger core inflation pressures entirely, however, because the CPI-trim and CPI-median indices – which exclude large price changes in either direction – both rose by a larger 0.3 per cent month over month, the strongest average gain in three months. That kept the annual core inflation rates unchanged at an average of 3.5 per cent. The upshot is that our forecast for the first interest rate cut in March is looking less likely although, given there are still another two CPI reports before that meeting, we are not minded to change our forecast for now.”

Leslie Preston, TD Economics

“Governor Macklem may be humming All I want for Christmas is two (per cent), 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.”

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Douglas Porter, BMO Economics

“Today’s moderately disappointing result drives home the point that we still have an inflation fight on our hands — in case there was really any doubt. Still, the bigger picture remains intact: The underlying inflation trend is lower, the economy is chilly, and the Bank is expected to begin trimming rates around mid-year. As an aside, this result will not be a big shock to the bank, as it had pencilled in an average inflation rate of 3.3 per cent for Q4 in its latest forecasts (which now looks doable, with December likely to print higher). Still, the latest result reinforces the message that markets had been a bit aggressive in their pricing of early and often rate cuts.”

• Email: gmvsuhanic@postmedia.com

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