OTTAWA – The country’s annual inflation rate edged down slightly in November, but that’s little relief for Canadians as grocery and shelter costs remain stubbornly high.
In its latest consumer price index report released Wednesday, Statistics Canada said inflation had slowed to 6.8 per cent last month as prices for gasoline and furniture cooled.
Those declines, however, were offset by grocery prices climbing at a faster annual rate in November compared with the month before.
The federal agency said food prices rose 11.4 per cent annually, up from 11 per cent in October.
“There was some progress being made to slowing inflation down, but not as much as I think anyone would have liked to have seen,” said Royce Mendes, head of macro strategy at Desjardins Capital Markets.
The rise in shelter costs was also a contributing factor in driving up November’s annual inflation rate.
Canadians are facing higher mortgage interest costs and rising rent. Mortgage interest costs were 14.5 per cent higher in November on an annual basis, while rent was up 5.9 per cent.
Statistics Canada noted that upward pressure is being placed on rent prices as more Canadians are priced out of home ownership because of high interest rates.
According to recent data from Rentals.ca and Urbanation – a real estate research firm – average rent across the country is up 12 per cent from last year, reaching a record-high of $2,024 for all rental types.
“Canadians have been feeling higher, rising rent costs for some time,” Mendes said.
Core inflation, which excludes energy and food prices, is also stubbornly high, rising 5.4 per cent on a yearly basis.
In a client note, BMO chief economist Douglas Porter said core inflation edging up is a clear sign of persistent underlying inflation pressures.
“Turning the temperature down on inflation is proving to be an achingly slow process, and we suspect this may be a theme for 2023,” Porter said.
November’s consumer price index report compares with an annual inflation rate of 6.9 per cent in October and September. Inflation peaked in July at 8.1 per cent and has slowed since then.
The Bank of Canada has raised interest rates rapidly this year to cool decades-high inflation and slow spending in the economy.
Economists expect Canadians facing higher shelter costs because of high interest rates to pull back on other spending. That process is expected to slow inflation.
Royce said Canadians have only seen the “tip of the iceberg” when it comes to the effect of rate hikes on the economy and inflation.
“The deceleration in inflation has really come as a result of supply chain disruptions easing and energy prices falling, not as a result of the Bank of Canada’s interest rate increases,” he said.
Economists say it can take between 12 and 18 months for rate hikes to take full effect on the economy.
Earlier this month, the central bank raised its key interest rate for the seventh consecutive time this year, bringing it to 4.25 per cent – the highest it’s been since January 2008.
It also signalled it’s open to pressing pause on the rate hikes, depending on how the economy evolves.
However, Porter is doubtful the Bank of Canada is ready to stop its aggressive rate hike cycle and expects it to hike rates again in January.
“This firm report does nothing to doubt that call,” he wrote.
Porter said the central bank may even hike rates past January.
“And that’s something nobody is talking about.”
The Bank of Canada will make its next interest rate decision on Jan. 25.
The central bank will have updated economic data to consider next month before making the decision, Royce said, including fourth quarter surveys on business and consumer expectations on inflation.
“The data will really dictate what the Bank of Canada does, because I think it’s a very close call at this point.”
This report by The Canadian Press was first published Dec. 21, 2022.
