Canadian headline inflation eases in November

Canada’s headline consumer price inflation eased in November. The headline rate decelerated to 1.7 percent year-on-year from October’s 2.4 percent. This is slightly below the consensus expectations of 1.8 percent. Adjusted for seasonal patterns, prices fell 0.2 percent sequential.

The headline figure decelerated mainly due to energy prices. With gasoline prices declining 9.4 percent on the month, the energy price index dropped 1.3 percent relative to its level a year ago. Excluding energy, inflation eased to 1.9 percent year-on-year from 2 percent last month.

Price growth eased in six categories out of eight with just food, alcohol & tobacco bucking the trend. The largest deceleration was in household operations, clothing and footwear and recreation and education.

Among wider aggregate categories, prices of goods rose considerably slower than a month ago, advancing by just 0.5 percent year-on-year. In the meantime, services sector price growth continued to be stable at 2.7 percent year-on-year.

Two of three of the Bank of Canada’s core measures dropped on the month, with CPI-median and CPI-trim decelerating to 1.9 percent. CPI-common was unchanged at 1.9 percent, the level it has been at since February.

Markets were anticipating headline inflation to weaken in November. Most of the slowdown could be chalked to fall in energy prices, but inflationary pressures were subdued elsewhere. Looking beyond inflation, a downshift in energy prices and oil output curtailment in Alberta are expected to have negative implications for economic growth in both Canada and Alberta, noted TD Economics in a research report.

“The direct impact to Canadian real GDP growth in 2019 is estimated to be a reduction of about 0.15 percentage points, with only a partial recoup expected in 2020”, said TD Economics.

The Bank of Canada is not done hiking rates, but with both core and headline price growth appearing weak and risks to the economy tilted to the downside, there is little urgency.

“As such, we expect just two rate hikes in 2019, with the next increase likely not coming until the spring”, added TD Economics.

At 17:00 GMT the FxWirePro's Hourly Strength Index of Canadian Dollar was highly bearish at -157.379, while the FxWirePro's Hourly Strength Index of US Dollar was slightly bearish at -69.6186. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex