Canada inflation rate: What the economists say

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Putting a lid on the decades-high pace of inflation is proving to be a difficult challenge. Canada’s consumer price index eased in November to 6.8 per cent year over year, down slightly from the increases of 6.9 per cent in September and October.

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But it was still higher than the 6.7 per cent reading that economists were expecting.

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Surging grocery prices kept the pace of price pressures buoyed, rising 11.4 per cent in November compared to a year ago. Core prices, which exclude food and energy, pushed even higher at 5.4 per cent in November since last year, rising from the 5.3 per cent annualized pace in October.

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Here is what economists say about the data everyone is watching:

Andrew Grantham, senior economist, CIBC Capital Markets

Even with the slight upside surprise today, the October and November prints combined leave inflation running below the Bank of Canada’s October (monetary policy report) forecast (7.1 per cent) for Q4 as a whole.

Even though that deceleration in inflation is largely a gasoline price story at this stage, we still see the Bank pausing its hiking cycle and leaving rates on hold at the next meeting in January, although there is one more CPI print to come between now and then and it would be nice to see signs of deceleration in core measures.

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Royce Mendes, managing director and head of macro strategy, Desjardins Group

Importantly, the three-month annualized rates of the Bank of Canada’s trimmed mean and median measures both accelerated too. The three-month annualized rate of the trimmed mean metric picked up to 3.9 per cent from 3.5 per cent, and median rose to 3.6 per cent from 3.4 per cent. This isn’t surprising given how volatile three-month annualized rates can be. But, given that the Bank of Canada explicitly stated that it wanted to see those metrics fall further before declaring that material progress toward the inflation target had been made, today’s data will leave the door open to a 25 (basis point) rate hike in January.

There are still important data points that will be released before the next Bank of Canada rate decision. We’ll stick with our call that the central bank hits the pause button in January, but will be monitoring incoming data very closely.

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Charles St-Arnaud, chief economist, Alberta Central

Inflationary pressures remain broad, with almost 80 per cent of the components of CPI rising at more than three (year-over-year), and more than 60 per cent at more than five per cent year-over-year. The share of CPI components rising by more than five per cent increased slightly in November, suggesting a slight broadening in inflationary pressures. This likely explains why measures of core inflation increased in November.

While inflation may be peaking, it remains well above the BoC’s target of two per cent, inflation expectations are rising, and inflationary pressures remain broad and sticky. With this in mind, this CPI report is likely to be a small disappointment for the Bank of Canada which was likely hoping for a weakening in underlying inflationary pressures. In our view, this increases the odds that the BoC will likely increase its policy rate by 25 (basis points) at the January meeting. However, the decision is likely to depend on other incoming data, especially the next employment report (Jan. 5th) and the next CPI release (Jan. 17th).

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Douglas Porter, chief economist, Bank of Montreal

Despite the seemingly mild top-line dip, this is a disappointingly high reading, as November is normally a weak month for prices (seasonally adjusted prices were up a sturdy 0.4 per cent). And, lower gasoline prices flattered the result.

Turning the temperature down on inflation is proving to be an achingly slow process, and we suspect this may be a theme for 2023. While lower pump prices will help chop next month’s rate, the fact that many measures of core inflation are still nudging higher is a clear warning sign of persistent underlying pressures. We are leaning to the view that the Bank of Canada hikes rates one more time in January to 4.5 per cent, and this firm report does nothing to doubt that call. If anything, the stickiness in core trends around five per cent or higher hints at the possibility of even further rate hikes later on — and that’s something nobody is talking about.

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