Canada’s inflation rate held at 3.1% in November. Here’s what happens next

11:25 a.m.

What’s next?

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The big economic story for the coming year is the path of interest rates. With the U.S. Federal Reserve projecting three quarter-point cuts in 2024, naturally people are wondering how the Bank of Canada will handle this process – including those who are set to renew their mortgages.

As of Tuesday, markets are pricing in the first rate cut at the BoC’s April meeting, followed by another three quarter-point cuts by October. The bank’s next decision is on Jan. 24.

Still, the central bank has been careful to not engage in any discussion of rate cuts, and instead has stressed the importance of seeing more progress in controlling inflation. The next inflation report will be published on Jan. 16.

Before then, Statscan will release retail sales figures for October on Thursday. Lately, the numbers have shown that Canadians are pulling back on spending as they contend with the impact of higher interest rates. Statscan will also publish gross domestic product figures for October on Friday. The Canadian economy has stalled over the past two quarters, and the consensus view on Bay Street is that growth will be muted in the coming months.

– Matt Lundy

10:45 a.m.

Analysis: November’s report doesn’t provide great revelations on where inflation is headed

On an emotional level, perhaps we can be thankful that we ended another stressful inflation year with a quiet report to send us into the holidays. But if you’re looking for any great revelations on where inflation is headed, and how quickly it will get there, the November CPI report won’t help much.

The headline inflation rate held steady at 3.1 per cent, and both of the Bank of Canada’s core inflation gauges were also unchanged, at 3.4 and 3.5 per cent. After two months of fairly significant declines, perhaps it’s modestly good news that they didn’t backslide.

On a month-to-month basis, overall CPI was up a thin 0.1 per cent, matching October’s pace – though, notably, on a seasonally adjusted basis, the increase was a hotter 0.3 per cent, after being flat in October. If you’re into three-month inflation readings – as many economists are these days, as a means of tracking the shorter-term trend – the seasonally adjusted CPI was up at an annualized pace of a tame 1.5 per cent over the past three months.

This report does nothing to change the Bank of Canada’s narrative on interest rates – it will still be looking for further evidence that core pressures are cooling. The monthly and three-month trends will be somewhat encouraging, as will the continued slowdown of food inflation; the sky-high pace of rent and mortgage inflation will remain a source of concern. The central bank will have one more inflation report – in mid-January – before its next interest rate decision, on Jan. 24. It would have to see a lot more than the numbers in this report to soften its position and drop its warning that further rate increases are still possible.

– David Parkinson

10:15 a.m.

Economists react to Tuesday’s inflation report

Stephen Brown, deputy chief North America economist, Capital Economics:

A temporary step backward. The renewed acceleration in core inflation pressures in November was partly due to a jump in travel tour prices, which is likely to be reversed in December. Nonetheless, by highlighting the continued uncertainty of how long it will take for core inflation to return to 2 per cent,, the move still reduces the chance that the bank will cut interest rates as soon as we forecast in March.

… The good news is that the upside surprise appears to have been largely due to an unexpected surge in travel tours prices. Typically, they fall by about 10 per cent month over month in non-adjusted terms in November, but this November they rose by almost 5 per cent. According to Statscan, that was “mainly attributable to events held in destination cities in the United States.” That move alone seems to have pushed up the CPI by 0.2 per cent month over month, but it should be reversed before long …

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.

Douglas Porter, chief economist, Bank of Montreal:

The overriding point is that despite the recent mirth over potential rate cuts in 2024, we clearly can’t assume that the inflation fight is finished — as Governor Macklem has so often warned one and all …

The bigger picture is that Canadian inflation was still sitting at a towering 6.8 per cent a year ago, or almost 4 percentage points higher than today. Such swift and heavy declines in headline inflation are rare, and have typically only been witnessed in the wake of a recession; so the fast fall in the past year is very much welcome news. It also keeps Canadian inflation precisely in line with the U.S. pace.

Bottom Line: 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.

Andrew Grantham, senior economist, CIBC Capital Markets:

Headline inflation failed to ease as expected in November, but softer readings on its core measures compared to earlier in the year should still give the Bank of Canada some comfort that underlying trends are headed in the right direction ... 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.

Leslie Preston, managing director and senior economist, TD Economics:

The Bank of Canada got a real mix in their inflation stocking this month. There were a few lumps of coal in the form of no progress on headline inflation, and continued strength in services inflation. But, when they dig down to the bottom of the toe there is a shiny bauble – that their preferred core inflation measures averaged just below 2.5 per cent on an annualized basis over the past three months, the slowest pace since the beginning of 2021.

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.

Read here for the full economist and market reaction roundup.

– Darcy Keith

9:55 a.m.

Inflation highlights: Housing, grocery, cellphone bill prices

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The upshot in Tuesday’s report is that various measures of core inflation – which remove volatile price movements – are settling down. The Bank of Canada’s preferred measures of core inflation – CPI-median and CPI-trim – rose at three-month annualized rates of 2.3 per cent and 2.6 per cent, respectively. They were in the 3.5-per-cent range in recent months.

Elsewhere, there were hiccups. Excluding food and energy, the CPI rose at a three-month annualized rate of 4.1 per cent in November, picking up from 3.6 per cent the previous month.

Housing costs continue to be an issue. Rents rose 7.4 per cent on an annual basis, although this was down from October’s 8.2-per-cent pace. Mortgage interest costs are still climbing by around 30 per cent, year over year.

Meanwhile, grocery prices are moderating. They rose 4.7 per cent in November from a year earlier – the first time that grocery inflation has come in lower than 5 per cent since November, 2021.

Consumers are seeing relief on their cellphone bills. Prices for cellular services were down 22.6 per cent in November from a year earlier. Statscan said there were a “variety of promotions across the industry” before Black Friday, which “offered reduced prices for cellular phone plans, as well as bonus data.”

– Matt Lundy

9:35 a.m.

Analysis: Well, we just got the status quo on inflation

Well, that was disappointing. A dip in the November inflation rate would have offered encouragement to all the mortgage holders and other borrowers hoping for rate relief in 2024. Instead, we got the status quo on inflation.

That feeling you have that life is getting more and more unaffordable? It’s based on fact, not just emotion. Food prices were up 5 per cent in November on a year-over-year basis. Shelter costs, including rent and mortgage interest, were up 5.9 per cent. These increases pile on top of previous increases to make life more expensive.

A dip in the inflation rate in November would only have meant lower price hikes, not a retreat in prices. But it would have pushed us toward the Bank of Canada’s preferred 2 per cent level for inflation, which in turn would clear the way for the bank to start lowering interest rates. Lower rates would help people with variable-rate mortgages and those with fixed-rate mortgages who will renew in 2024.

If you’re a mortgage holder waiting for rate relief, keep your eyes on the December inflation rate when it’s reported early next year. If inflation backs off, then the disappointing November inflation rate is just a blip.

– Rob Carrick

9:20 a.m.

How markets are reacting to today’s inflation data

This inflation report on the whole was modestly hotter than consensus expectations and we’re seeing a predictable market response as a result. The Canadian dollar immediately shot up about two-tenths of a U.S. cent, to 74.88 cents as of 8:38 a.m. ET. The two-year Canadian government bond yield, which is quite sensitive to central bank policy moves, took a noticeable turn higher upon the 8:30 a.m. Statistics Canada report, shooting up about 5 basis points to 4.055 per cent. The Canada five-year bond yield – heavily influential on fixed mortgage rates – rose a couple basis points.

Implied probabilities in the swaps market immediately priced in a lower chance of an interest rate cut by the Bank of Canada in March, at about 38 per cent. Prior to the data, it was at 46 per cent. But markets are still heavily betting on a cut next spring, with an 82 per cent probability in April – down modestly from 88 per cent prior to the data.

How money market bets for BoC rate cuts have shifted after today’s inflation data

Interest rate swaps are changing all the time, and we may see further adjustment to these numbers later this week when a number of U.S. economic reports are released. But for now, the main message money markets are signalling is that monetary easing is coming in the first half of next year, and by year end, traders are betting on about a full percentage point of cuts to the bank’s overnight rate.

And despite the Bank of Canada’s insistence that a further hike in interest rates shouldn’t be ruled out, money markets are assigning virtually zero chance to that scenario.

– Darcy Keith

9:05 a.m.

A look at inflation by province

8:55 a.m.

The new inflation numbers

Canada’s annual inflation rate held at 3.1 per cent in November, higher than analyst expectations of 2.9 per cent, Statistics Canada said Tuesday in a report.

The agency noted that higher prices for travel tours – which rose 26.1 per cent on an annual basis – put upward pressure on the Consumer Price Index (CPI).

Prices for services rose 4.6 per cent annually in November, matching the increase in October. Excluding food and energy, the CPI rose 3.5 per cent in November, ticking up from a 3.4-per-cent increase in October.

The results appear to confirm why the Bank of Canada has been reticent to declare victory over inflation and signal the start of rate cuts in 2024. At a speech on Friday, BoC Governor Tiff Macklem said he expects inflation to get “close” to the bank’s 2-per-cent target by late next year, though he also said it’s “still too early to consider cutting our policy rate.”

The bank has raised its benchmark interest rate to 5 per cent from 0.25 per cent in early 2022, a forceful campaign of monetary policy tightening meant to curb inflation.

Mr. Macklem has repeatedly said that the bank’s policies are working, and indeed, the inflation rate has eased significantly from a peak of 8.1 per cent last year.

However, bank officials have stressed that the final leg of the journey – getting inflation sustainably back to 2 per cent – could be bumpy and take a while.

– Matt Lundy

8:35 a.m.

Canada’s inflation rate unexpectedly holds

Canada’s annual inflation rate unexpectedly remained at 3.1 per cent in November, as slower growth in food prices and cheaper cellular services and fuel oil were offset by an acceleration in prices of travel tours, Statistics Canada data showed.

Headline inflation is still broadly in line with the Bank of Canada’s projection for it hover around 3.5 per cent until mid-2024, before slowly cooling to the bank’s 2 per cent target by end-2025.

CPI-median and CPI-trim - two of the BoC’s three core measures of underlying inflation - also held steady at 3.4 per cent and 3.5 per cent respectively.

– Reuters

8:30 a.m.

Canada’s inflation rate holds at 3.1% in November: Statscan

Canada’s annual inflation rate held at 3.1 per cent in November, higher than analyst expectations of 2.9 per cent, Statistics Canada said Tuesday in a report.

“Today’s report represents less progress in taming inflation than we had expected,” Royce Mendes, head of macro strategy at Desjardins Securities, said in a client note. “That said, there are still a number of signs pointing to a further normalization in underlying price pressures.”

– Matt Lundy

8:20 a.m.

Calculate your personal inflation rate

What is your personal rate of inflation? It’s probably different than the rate that gets reported by Statistics Canada every month.

The Consumer Price Index comprises hundreds of goods and services that people buy – everything from eggs and electricity to car rentals and cannabis. But this leads to inflation figures that, while informative, aren’t reflective of your circumstances. You probably don’t buy everything on that long list of goods and services – let alone in the same proportions.

That’s why The Globe and Mail created this personal inflation calculator, distilling CPI data from April, 2023, to a handful of key categories. Punch in your monthly expenses and the tool will calculate the annual change in consumer prices, based on your budget.

– Globe staff

8 a.m.

Analysis: A lower inflation rate will not be enough for Bank of Canada

A lower overall inflation rate for November will be all fine and good, and might give us all a happy seasonal glow heading into the holidays. But it won’t be enough for the Bank of Canada.

Regardless of what the headline inflation number does, the central bank has made it clear – repeatedly, for months – that it needs to see further downward momentum in core inflation, to be assured that inflation is on track to return to the bank’s 2-per-cent target. Governor Tiff Macklem said it again in a speech just last Friday. (The bank is also looking for other indicators of waning inflation pressures, but this is the big one contained in Tuesday’s data.)

Measures of core inflation are designed to filter out short-term gyrations and price swings related only to narrow parts of the consumer price index (CPI), in order to see the underlying inflation pressures common to the broader economy. It’s the underlying pressures that the central bank continues to fret about, as they contain the seeds to rekindle inflation problems.

The Bank of Canada actually has two measures of core inflation that it likes to look at in tandem – known as CPI-median and CPI-trim. Without getting into details, they both approach the concept of core inflation in different ways and, so, produce slightly different readings from time to time. What they have in common is that neither has moved down as quickly as the Bank of Canada would have liked this year, even as overall inflation has eased to just over 3 per cent. In October, CPI-median came in at 3.6 per cent, while CPI-trim was 3.5 per cent.

However, both gauges have eased considerably since the summer, when they were hovering around 4 per cent. Senior officials at the bank have suggested that the declines are too short-lived to be convincing. But if we get another step downward in November, that would mark three months in a row; the Bank of Canada would have a hard time denying at least the beginning of a trend.

– David Parkinson

7:30 a.m.

Market expectations ahead of today’s inflation report release

Canadian investors will get a reading on November inflation ahead of the start of trading, with economists expecting to see a continued easing of price pressures.

“Headline inflation likely cooled to 2.9 per cent year-over-year in November from 3.1 per cent year-over-year in the prior month,” BMO senior economist Robert Kavcic said, citing the impact of slowing food inflation and falling gas prices.

“Overall, we’re likely to see decent progress toward the [Bank of Canada’s] 2 per cent target; not enough for the BoC to turn dovish, but a step in that direction,” he said.

Before the Bell: What every Canadian investor needs to know today

Deliberations from the Bank of Canada’s policy meeting earlier this month, when it again left rates unchanged, will be released tomorrow afternoon.

– Terry Weber

7 a.m.

Minimize inflation in your grocery bill with our calculator

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Is your weekly grocery bill looking a lot higher lately? You can probably blame food inflation for the changes you’ve seen at the supermarket.

If you’re looking for more ways to shield your grocery cart from inflation, this calculator will help you spot ways to bring down costs.

– Globe staff

6:00 a.m.

November inflation report to be released today

Canada’s inflation rate is widely expected to continue decreasing when new figures are published on Tuesday morning.

Financial analysts expect the annual inflation rate fell to 2.8 per cent in November from 3.1 per cent in October. That would bring inflation back within the Bank of Canada’s target range of 1 to 3 per cent. (The bank aims for the midpoint – 2 per cent – of that window.)

Inflation has made significant progress, largely because of a major decline in energy prices, since hitting a four-decade high of 8.1 per cent last year. That continues to be a theme: Gas prices fell again in November, and while grocery prices are still climbing, they are doing so at lower rates than earlier this year.

“Slowing food inflation and falling gas prices should help bring inflation expectations down – exactly what policymakers want to see,” Bank of Montreal economists said in a recent report.

At a speech on Friday, Bank of Canada Governor Tiff Macklem said he expects inflation to get “close” to the bank’s 2-per-cent target by late next year.

However, Mr. Macklem said that it is “still too early to consider cutting our policy rate,” which at 5 per cent is the BoC’s highest benchmark interest rate since 2001. The bank’s communications have differed from those of its U.S. counterpart, the Federal Reserve, which last week projected three quarter-point rate cuts in 2024.

Despite the progress in curbing inflation, housing prices remain an area of concern. In October, rents had risen 8.1 per cent over the previous year, a sign of how the worsening housing shortage is affecting prices.

– Matt Lundy