Canadian Underlying Inflation Rises to Highest in a Decade

(Bloomberg) -- Canadian underlying inflation hit the highest in a decade in November, reinforcing a decision by policy makers this month to refrain from cutting interest rates despite concerns around slowing growth.

The overall consumer price index was up 2.2% in November from a year earlier, compared with 1.9% gain in October, Statistics Canada reported Wednesday. Core inflation readings -- seen as a better measure of underlying price pressure than the headline figure -- also increased 2.2%, the highest reading since 2009, from 2.1% in October. The pick up in core was unexpected by economists.

The report gives the Bank of Canada, which has bucked the global easing trend this year, even less reason to cut borrowing costs. Governor Stephen Poloz has cited inflation hovering around the 2% target as one of the main factors in his decision to stand pat even as the economy slows in the second half amid global trade tensions.

With inflation ticking up, “the Bank of Canada will need to see more consistent weakness in the Canadian economy to follow other central banks and cut,” said Brett House, deputy chief economist at Bank of Nova Scotia in Toronto. The currency rose on the report, appreciating 0.3% to C$1.3124 per U.S. dollar at 10:19 a.m. Toronto time.

Canada’s CPI has grown at 1.9% or more on an annual basis for nine straight months. Core inflation readings have hovered at around the 2% target since the beginning of 2018.

Wednesday’s report is unlikely to raise any red flags about consumer price gains just yet. The Bank of Canada and some private economists had anticipated inflation to pick up temporarily in the coming months, due to year-over-year movements in gasoline prices.

“Should gasoline prices remain stable, the headline inflation rate should also cool back down in the second quarter of next year, as the year-ago comparisons become a bit firmer,” Royce Mendes, an economist at Canadian Imperial Bank of Commerce, wrote in a note.

Monthly Drop

Mortgage interest costs and higher prices for passenger vehicles were the largest contributors to the 12-month change in prices. Telephone and internet access services were the main downward contributors.

Energy prices rose 1.5% on an annual basis in November, on a weak comparison from a year earlier when gasoline prices were dropping due to the global supply glut.

Consumers paid 6.2% more for fresh or frozen beef in November from a year earlier; the price gains follow disruptions to North American supply chains and strong international demand for Canadian beef. Following the end of export bans on Canadians pork, consumers paid more on an annual basis for ham and bacon, fresh or frozen pork in November from the prior month.

On a monthly basis, the consumer price index fell 0.1%, also matching forecasts.

--With assistance from Erik Hertzberg.

To contact the reporter on this story: Shelly Hagan in Ottawa at shagan9@bloomberg.net

To contact the editors responsible for this story: Theophilos Argitis at targitis@bloomberg.net, Chris Fournier, Stephen Wicary

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