In a surprising turn of events, Canada's inflation rate remained steady at 3.1% last month, defying expectations and providing the central bank with reasons to maintain its current stance on interest rates, which are at their highest level in two decades.
According to a report released by Statistics Canada in Ottawa on Tuesday, the Consumer Price Index (CPI) increased by 3.1% in November compared to the same period last year, matching the previous month's rise. This exceeded the median estimate of 2.9% predicted by economists in a Bloomberg survey.
On a monthly basis, the CPI saw a minimal increase of 0.1%, contrary to expectations for a decrease of 0.1%. The Bank of Canada closely monitors two key yearly inflation measures, the trim and median core rates, which remained unchanged at an average of 3.45% year-over-year, surpassing economists' expectations of 3.35%.
A significant metric closely watched by the central bank, the three-month moving average of underlying price pressures, fell to an annualized pace of 2.45% from 2.86% the previous month. This metric is vital as it helps policymakers understand inflation trends, according to Bank of Canada Governor Tiff Macklem.
Mortgage interest costs continue to be the primary contributor to the Consumer Price Index, with the inflation rate excluding these costs at 2.2% in November. Excluding shelter costs entirely, the figure is 1.9%.
Despite the setback reflected in Tuesday's numbers, policymakers are unlikely to change their stance after maintaining the central bank's overnight rate at five percent for the third consecutive meeting last month. Macklem and his officials anticipate a weaker economy to alleviate the pace of price gains in the coming months.
While the inflation data is disappointing, it does not prompt discussions about rate cuts or a reduction in interest rates anytime soon. In a recent interview with BNN Bloomberg Television, Macklem mentioned that easing is expected sometime in 2024, contingent on sustained downward momentum in core inflation over several months.
This inflation report precedes the Bank of Canada's next rate decision on January 24. A Bloomberg survey suggests that the majority of economists expect the bank to keep borrowing costs unchanged, considering the Canadian economy's signs of stagnation and the anticipated slowdown in the inflation rate.
In contrast to the U.S. Federal Reserve, which signaled a halt to its hiking campaign, Macklem remains cautious, emphasizing that it is too early to consider easing. He expects Canada's inflation to approach the two percent target by the end of next year, but rate cuts will only be considered when a clear path back to price stability is assured.
In November, services inflation held steady at 4.6%, while goods inflation slightly rose by 1.4%. Major contributors to the CPI included mortgage interest costs, rent, and food, with gasoline, telephone services, and natural gas exerting downward pressures on the inflation rate.
Regionally, prices increased at a slower pace from a year ago in six of ten Canadian provinces, with Quebec reporting the highest inflation rate at 3.6%. Despite uncertainties, the central bank appears committed to closely monitoring economic indicators before making any significant adjustments to interest rates.
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