Canada Inflation Research Brief

CPI report offers mixed results. Inflation rose 1.9 per cent year over year in November, down from the 2.0 per cent reading in October. With the cost of capital now firmly trending down since June, mortgage interest costs were one of the largest contributors to November’s price deceleration. The impact from Black Friday discounts also put some downwards pressure on the headline number. However, some underlying price pressures continued to persist. Not only did the Bank of Canada’s preferred measures of core inflation – CPI-median and CPI-trim – hold stable at 2.6 per cent and 2.7 per cent, respectively, but the three-month annualized rate for the average of the two is now up to 3.3 per cent. Looking ahead, inflation is likely to be more volatile due to the two-month federal tax break on some goods and services that went into effect in December. Still, with headline inflation sitting at target since August, the central bank is likely to keep lowering its policy rate over the coming months, albeit at a more measured pace.