Canada's Inflation Rate in November Remains Within Central Bank's Target, Grocery Prices Still High

Recent data released by Statistics Canada shows that the country's Consumer Price Index (CPI) rose 1.9% year-on-year in November, slightly down from October's 2.0% inflation rate.

Statistics Canada highlighted a broad slowdown in price increases, with package tour prices and mortgage interest costs being key drivers of this deceleration. Month-on-month, the CPI was flat in November, following a 0.4% increase in October. Gasoline prices saw a marginal decline of 0.5% year-on-year in November. Excluding gasoline, the CPI rose 2.0% year-on-year.

Grocery prices remained elevated, with food purchased from stores up 2.6% year-on-year in November and a striking 19.6% increase compared to November 2021. Black Friday-related sales led to price drops in categories such as home goods, furniture, appliances, clothing, and footwear. For instance, children's clothing prices fell 4.9% month-on-month, marking a record drop, while cellular service prices declined by 6.1% month-on-month.

Housing expenses increased 4.6% year-on-year, slightly slowing from the previous month, but they were up 18.9% compared to November 2021. Travel services prices declined 6.7% year-on-year, though this was moderated by an 8.7% increase in accommodation costs.

Last week, the Bank of Canada announced another 50-basis-point rate cut, the fifth consecutive reduction since early June and the second significant cut since late October. The central bank stated that its monetary policy has successfully brought the inflation rate back to its 2% target. It aims to see economic growth pick up while keeping inflation stable at around 2%.

Additionally, the Canadian government's proposal for a nationwide temporary GST relief measure has been approved by Parliament. From December 14, 2024, to February 15, 2025, all eligible goods supplied or imported into Canada will be exempt from the Goods and Services Tax (GST) and Harmonized Sales Tax (HST). This includes meals from restaurants, various prepared foods, low-alcohol beverages, children's clothing and footwear, diapers, car seats, toys, printed newspapers, books, and even Christmas trees. During this period, nearly all food-related consumption in Canada will be tax-free.

The Bank of Canada noted it will closely monitor the potential effects of federal and provincial temporary tax exemptions and adjustments to mortgage rules on the trajectory of inflation.