Canadian Core CPI Remains at 2.1%

Headline CPI remained unchanged at 2.9% in November. Core CPI also remained unchanged at 2.1. On a monthly basis, headline CPI rose 0.1%, following an increase of 0.2% in October. Core prices increased 0.1% after rising 0.3% the month before. On a seasonally adjusted basis, headline CPI rose 0.1% and core prices 0.1%. In November, 4 out of 8 major components were up on the month (s.a.). The largest price increase in September was in transportation (+0.5%) and household operations, furnishings & equipment (+0.3%). Declines were observed in clothing and footwear (-0.8%) and shelter (-0.2%). On a regional basis, 6 provinces experienced inflation decrease (y/y). Inflation increased in Newfoundland & Labrador (from 3.5 to 4.1%) and in Manitoba (from 3.0% to 3.1%). Inflation remained unchanged in Prince Edward Island and British Colombia.

OPINION: No major surprise in this morning CPI report as headline and core CPI were roughly in line with consensus expectations. Overall, prices growth in Canada has been low in November. Total CPI is clearly in a downward trend due to the recent decline of commodity prices, in response to a decline of physical and financial demand and to the rise of the U.S. dollar. In this context, inflation peaked worldwide and should continue its downward trend going forward (middle chart). Given actual economic uncertainties and inflation fears dissipating, a number of central banks, especially in emerging countries, could put their shoulders to the wheel. However, do not expect the Bank of Canada to go into the dance. Core inflation was soft in November but it experienced a 3.1% annualized rhythm over the last 5 months, its highest since 2002. Note also that the goods component in core inflation (including indirect taxes) is presently rising at its fastest pace since 2001 (bottom chart). That said, there are so many downside risks to the economy that the BoC is likely to play safe and leave monetary policy highly stimulative for the foreseeable future.