Canada & World

Inflation holds at 3.1% in November as progress in tamping down price growth stalls

December 19, 2023

Canada’s annual inflation rate was unchanged last month, holding steady at 3.1 per cent as progress on tamping down price growth stalled.

The November consumer price index report released Tuesday from Statistics Canada shows higher prices for recreation and clothing put upward pressure on inflation.

Although forecasters were widely expecting to see inflation tick down last month, the report still had some encouraging elements. Some core inflation measures, which strip out volatile components, are trending downwards.

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“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,” wrote BMO chief economist Douglas Porter in a client note.

“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.”

The report also spelled some good news when it comes to groceries as the pace of price increases eased for a fifth consecutive month.

Grocery prices were up 4.7 per cent from a year ago, marking a slowdown from 5.4 per cent in October.

Prices for services were unchanged last month as higher prices for travel tours were offset by lower prices for cellphone services.

Earlier this month, the Bank of Canada opted to hold its key interest rate steady at five per cent for the third consecutive time, largely because it has been encouraged by the slowdown in inflation and the economy this year.

It has been encouraged by evidence that higher interest rates are helping slow the economy and inflation down.

The Canadian economy has struggled to grow this year as higher borrowing costs make it more expensive for businesses to invest and consumers to spend.

The unemployment rate has also been on the rise as job market struggles to keep up with strong population growth, reaching 5.8 per cent in November.

These weaker economic conditions are expected to lay the groundwork for a further deceleration in inflation next year.

But in a speech delivered by governor Tiff Macklem last week, he acknowledged there may be bumps along the way to returning inflation to the central bank’s two per cent target.

Andrew Grantham, executive director of economics at CIBC, says the central bank doesn’t need to wait until inflation gets back to two per cent to cut interest rates. Macklem has made that point as well.

Moreover, Grantham says the weaker core measures suggest inflation is still on track to fall back to two per cent, which is “great news” for the Bank of Canada.

“Because then it can say to people that even if inflation is not necessarily back to two per cent target, we see evidence that it is possible to get to that target in the future, that the drivers of inflation are not as widespread as they used to be,” Grantham said.

Inflation in Canada has been steadily declining since mid-2022, but not without some hiccups, including an uptick in inflation during the summer.

The central bank has not ruled out the possibility of another rate hike, if it finds it necessary. But most forecasters anticipate its next move will be to cut interest rates sometime next year.

However, the latest inflation data has poured some cold water on financial market predictions of rate cuts as early as March or April.

“We always thought that was a little bit premature given where the inflation numbers were. So it doesn’t change anything in terms of our expectations that the first cut will come in June,” Grantham said.

Here’s what happened in the provinces (previous month in brackets):

— Newfoundland and Labrador: 2.1 per cent (2.4)

— Prince Edward Island: 0.4 per cent (1.7)

— Nova Scotia: 2.5 per cent (3.2)

— New Brunswick: 1.7 per cent (2.8)

— Quebec: 3.6 per cent (4.2)

— Ontario: 3.3 per cent (3.3)

— Manitoba: 1.8 per cent (1.9)

— Saskatchewan: 2.3 per cent (1.8)

— Alberta: 2.5 per cent (2.1)

— British Columbia: 3.2 per cent (2.7)

The agency also released rates for major cities, but cautioned that figures may have fluctuated widely because they are based on small statistical samples (previous month in brackets):

— St. John’s, N.L.: 2.8 per cent (2.9)

— Charlottetown-Summerside: 0.1 per cent (1.6)

— Halifax: 3.1 per cent (3.5)

— Saint John, N.B.: 1.9 per cent (2.7)

— Quebec City: 3.8 per cent (4.3)

— Montreal: 4.1 per cent (4.6)

— Ottawa: 2.9 per cent (2.6)

— Toronto: 3.8 per cent (4.0)

— Thunder Bay, Ont.: 2.1 per cent (2.6)

— Winnipeg: 2.0 per cent (2.2)

— Regina: 2.9 per cent (2.3)

— Saskatoon: 2.9 per cent (2.2)