2023-12-20 01:18:13
Prices for services were flat last month, rising 4.6% year over year, as higher prices for package tours were offset by lower prices for cell phone services. (Photo: 123RF)
Annual inflation remained unchanged in November in the country, at 3.1%, according to Statistics Canada. This stabilization demonstrates that the fight once morest inflation is not over, according to experts.
Consumer price index (CPI) data, released on Tuesday, showed progress in easing inflation has stalled. Higher prices for leisure and clothing have put upward pressure on overall inflation.
Economists mostly expected a decline in inflation last month.
However, the report contains some encouraging elements, notably a slowdown in certain indicators of core inflation, which eliminates volatile components.
“Today’s moderately disappointing result highlights the fact that we still need to fight inflation, in case there is still any doubt,” reacts Douglas Porter, chief economist at BMO.
“Nevertheless, the picture remains the same: the underlying inflation trend is weaker, the economy is slowing and the Bank of Canada is expected to begin cutting rates around mid-year.”
The report contains other good news regarding food products. The pace of price increases slowed for a fifth consecutive month.
Food prices rose 4.7% from a year earlier, marking a slowdown from 5.4% in October.
Prices for services were flat last month, rising 4.6% year over year, as higher prices for package tours were offset by lower prices for cell phone services.
The Bank of Canada has chosen to maintain its key interest rate at 5% in recent months, but has not ruled out further rate hikes if inflation remains high.
In his speech last week, Governor Tiff Macklem acknowledged that there might be obstacles on the path to returning inflation to the 2% target.
Andrew Grantham, managing director of economic affairs at CIBC, believes the central bank does not need to wait for inflation to return to 2% to ease its monetary policy. Mr. Macklem has also expressed the same point of view in the past.
Additionally, Andrew Grantham believes that weaker core inflation measures suggest inflation is still on track to fall back to 2%, which is “great news” for the Bank of Canada.
“Because he can then consider that, even if inflation does not necessarily return to the 2% target, there are indications that it is possible to achieve this target in the future, that the causes of inflation are not as numerous as before,” says Andrew Grantham.
The inflation trend in Canada has moderated since mid-2022, although not without some ups and downs, including a slight increase in inflation over the summer.
The central bank does not rule out the possibility of a further rate hike if it deems it necessary. Most forecasters, however, expect the next move to be to lower interest rates next year.
The latest inflation data, however, have tempered financial markets’ expectations of possible rate cuts as early as March or April.
“We always thought it would have been a bit premature given the inflation data,” explains Andrew Grantham. “So it doesn’t change our expectations that the first reduction will take place in June.”
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