OTTAWA — Canada's fight against inflation didn't gain ground last month as the annual rate held steady at 3.1 per cent, but economists say the slightly disappointing figure doesn't change the Bank of Canada's interest rate plans.
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.
"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 alsospelled 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.
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.
This report by The Canadian Press was first published Dec. 19, 2023.
Nojoud Al Mallees, The Canadian Press
