The pace of headline inflation slowed in November as interest rate hikes continued to take hold, according to economists at Canada's largest banks. Pressure on core inflation is expected to remain persistent and cast a shadow over what should be good news for Canadians.
Inflation is expected to have slowed in November from the 6.9 per cent pace recorded in October.
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According to Douglas Porter, chief economist at the Bank of Montreal, the worst is over for headline inflation, which has already declined from a peak of 8.1 per cent in June. It can't be said for core readings.
When we look at underlying inflation, we really haven't seen any relief, and that's because the Bank of Canada and the Fed are going to be trained on that now. Core inflation is moving higher in Canada.
Food and energy prices are excluded. In the first three months of the year, inflation was 4.2 per cent, but without them it was 5.1 per cent in October. Porter said that it will be difficult to ease core measures if Canadians continue to see price pressures at the gas pumps.
As November tends to see a lull in consumer prices, the inflation rate is expected to slow by about four ticks to a year-over-year rate of 6.5 per cent.
"November is historically the second-strongest month of the year for food prices, and we're not expecting any difference this year, with a near-one-per-cent increase." Inflation tends to be soft in November.
As shelter costs ease from lower home prices, related categories such as furniture and bedding have slowed.
The Royal Bank of Canada expects inflation to cool in the month of November but not as much as the Bank of Montreal. The consumer price index is expected to grow at a slower rate of 6.7 per cent, but economists think food prices will go up by ten per cent.
Nathan Janzen and Carrie Freestone wrote that the Bank of Canada pointed to those early signs as a reason that interest rates may not need to rise further. The economy is expected to weaken in the coming quarters due to 400 basis points of interest rate hikes in 2022.
The central bank hiked the policy rate to 4.5% over the course of the year in order to stamp out decades-high inflation. The Bank of Canada wants to avoid a repeat of the 1970s and ‘80s, when inflation ran rampant and jumped back up a number of times before it was finally quelled.
The Bank of Canada ended the year with a 50 basis point hike and suggested in its accompanying statement that the governing council may have to pause and consider if more rate hikes are necessary.
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