Canada’s annual inflation rate remained constant at 2.2% in November, owing primarily to increased food prices, Statistics Canada announced on Monday.
On a year-over-year basis, the rise in food and restaurant prices was somewhat offset by a decrease in gasoline and lodging costs.
This is the first month since March that the Bank of Canada’s preferred core inflation measures, which exclude volatile goods such as food and gasoline, have fallen below the central bank’s 3% target.
Monthly inflation matches forecasts
According to Statistics Canada, monthly inflation grew by 0.1% in November, meeting analysts’ estimates and down from 0.2% in October.
Meanwhile, yearly inflation fell slightly short of Reuters’s projection of 2.3%.
The moderate inflation environment in Canada has remained since April, owing primarily to the repeal of a carbon charge on gasoline, which kept fuel prices lower than the previous year.
Gasoline prices fall on an annual basis
While fuel prices increased 1.8% from October to November, they fell 7.8% from the same month the previous year.
Excluding gasoline, the November consumer price index (CPI) would have been 2.6%, emphasising the importance of energy expenses in the overall inflation picture.
Food costs accelerate
In November, food prices increased at an annual rate of 4.2%, the highest rate since December 2023.
According to Statistics Canada, groceries cost 4.7% more, while food bought at restaurants costs 3.3% more.
The analysis found that adverse weather in major agricultural areas, combined with US import taxes, exacerbated these concerns.
The continent’s limited herd of cattle will keep beef prices high, while coffee imports from the US are making their way into Canada.
As the CPI rose and tariffs increased prices, most other parts of the CPI showed some cooling from the previous month, implying that wider price pressures were not building up too much as a result of the tariffs.
Core measures show a gradual decline
Since April, when US tariffs went into force, the Bank of Canada’s favoured core inflation metrics, CPI-median and CPI-trim, have remained around 3%.
In November, both measures fell to 2.8% from 3% in October.
CPI-median reflects the centermost component of the CPI basket, whereas CPI-trim eliminates the most extreme price fluctuations, providing a more accurate picture of underlying inflation patterns.
Economists highlighted that the slowdown in core inflation shows that a stagflationary environment is not forming, which provides some relief to central bankers concerned about sustained price pressures.
Market reaction
The report elicited a minimal reaction from the financial markets. The Canadian currency increased slightly, trading at 1.3761 per US dollar, or 72.67 US cents, up 0.07% on the day.
Meanwhile, the yield on Canada’s two-year government bonds declined 2.3 basis points to 2.486%.
What’s ahead?
The November report highlights the continued tensions between food price pressures and falling energy costs in determining Canada’s inflation path.
Gasoline and shelter year-over-year gains are relatively subdued, however, and food price inflation remains a burden for households.
As core inflation indicators fall below 3%, the Bank of Canada may have more flexibility in balancing economic growth and inflation control.
Analysts and investors are expected to continue watching these patterns in the coming months.
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