Canada’s inflation rate down a tick to 1.9% in November

“Generally speaking, anywhere between the one-to-three per cent range is very appropriate for the mandate of the Bank of Canada,” Royce Mendes, managing director and head of macro strategy at Desjardins Capital Markets, said in an interview.

“With headline inflation tracking just a little bit below two per cent and core inflation tracking a little bit above two per cent, there’s not much to worry about in this report.”

The report Tuesday showed the Bank of Canada’s preferred core measures of inflation held steady at 2.6 and 2.7 per cent.

The overall slowdown in inflation comes as inflation on goods grinds to a halt, while high wage growth and rising housing costs continue to push up service prices.

Inflation has hovered around the Bank of Canada’s two per cent target for several months now, clearing the path for the bank to lower interest rates.

After delivering a second consecutive half-percentage point rate cut last week, governor Tiff Macklem said the central bank anticipated a more gradual approach to monetary policy if the economy evolved as expected.

The central bank’s key interest rate now stands at 3.25 per cent.

However, it will be difficult for policymakers to determine the underlying trend in inflation over the next few months, with December figures weakened by the mid-month start of a GST holiday on certain goods and services, CIBC senior economist Andrew Grantham said in a note.

The federal government announced last month it would waive the five per cent sales tax on some products between Dec. 14 and Feb. 15.

Going forward, longer-term factors including Donald Trump’s threat to add 25 per cent tariffs on Canadian goods could impact inflation in the coming months.

Mendes called the potential tariffs a double-edged sword for inflation.

“On one hand, they would weaken the Canadian economy and make price pressures dissipate in so far as the economy would be operating below its potential,” he said.

“On the flip side of that, if Canada issues retaliatory tariffs, then consumer prices might rise in Canada.”

Mendes said Black Friday sales helped dampen overall price growth in November.

“It seems like there were a lot of Black Friday sales to go around,” he said.

Lower prices for cellular services and furniture, down 6.1 per cent and 2.1 per cent, respectively, drove down the furnishings and equipment index by 0.9 per cent in November, Statistics Canada said.

Large discounts on clothing and footwear also drove prices down 0.8 per cent from last year, the report showed. The monthly decline for children’s clothing was the largest on record for the month of November.

Discounts at many retail stores “suggest that retailers are willing to offer sales this holiday season, given the fact that consumers had headed into the spending season a little bit more cautious,” Mendes said.

Grocery prices continued to grow faster than overall prices, rising 2.6 per cent from a year ago.

Mendes said there might be some elements of depreciation in the Canadian dollar showing up in food prices such as goods that have a lot of import content. The Canadian dollar fell below 70 cents US on Tuesday, continuing a decline that began in October.

It isn’t a major factor in general though, he said.

“For overall prices, the currency depreciation is probably only a marginal impact.”

Shelter costs increased at a slower annual pace of 4.6 per cent.

Growth in mortgage interest costs continues to account for a large share of remaining price pressures, but is expected to moderate following interest rate cuts, RBC economist Claire Fan said in a note to clients.

Meanwhile, rent inflation, which accelerated to 7.7 per cent in November, is expected to slow down in the coming months, she said.

“We don’t expect that trend will continue as market asking rents continue to decline but flow through to lower average rents with a lag,” Fan said.

This report by The Canadian Press was first published Dec. 17, 2024.