MNI: Canada Inflation Unexpectedly Stalls at 3.1% In November

Canada's inflation slowdown unexpectedly stalled in November as pricier travel tours offset the government removing carbon tax from home heating oil in the eastern provinces.

The consumer price index held at a 3.1% year-over-year pace according to Statistics Canada's report Tuesday from Ottawa, compared with an economist consensus for it to slow to 2.9%. Prices climbed 0.1% on a monthly basis, also faster than the consensus prices would decline 0.1%.

The report dashes hopes inflation would end the year back within the Bank of Canada's inflation target band of 1% to 3% at a time when some investors are betting Governor Tiff Macklem will cut interest rates in the next few months. Officials held their overnight lending rate at the highest since 2001 at 5% earlier this month and have said they will only debate a reduction when it's clear inflation is on a sustainable path back to 2%. 

On that front, core inflation rates preferred by the Bank were also unchanged with the "median" measure at 3.4% and the "trim" at 3.5%. Excluding food and energy, the CPI increased 3.5% in November, following a 3.4% gain in October.

Inflation has exceeded the Bank's 2% target for almost three years now and that's another reason Macklem has given for caution about easier policy. Consumers have some high profile reasons to expect continued price gains with mortgage cost increases hitting records in recent months and holding around 30% in November. While grocery costs have slowed for five consecutive months they remain elevated at 4.7%. Rent costs are also gaining at about the fastest pace in decades and the 7.4% gain in November was a leading upward pressure on the consumer price basket. 

Travel tour costs jumped 26% from a year ago, Statistics Canada said, while gasoline costs fell 7.7% and fuel oil by 24% as the federal government temporarily suspended the carbon tax on home heating oil. That move underlined the public's anger with the cost-of-living squeeze that in some polls has put Justin Trudeau's Liberals tied for third place with the NDP and well behind opposition Conservatives. 

The Bank in October said it will take until 2025 for inflation to return to target, and while Governor Macklem on Friday said there's more evidence the target is within sight he declined to give a new forecast. “We don’t need to wait until inflation is all the way back to the 2% target to consider easing policy, but it does need to be clearly headed to 2%,” the Governor said in his speech.

There are other signs of a cooling economy that could slow prices includubstalling GDP and a rise in unemployment in recent months. Still, wage inflation is running at about 5%, which officials say isn’t consistent with price stability at a time of falling labor productivity.