Canada’s annual inflation rate moderated in November, once again falling below 2%. This was largely in line with the Bank of Canada’s (BoC) outlook, which expects inflation to hover around 2%. Canada’s inflation rate had risen over the previous two months, largely in response to a slower decline in energy prices. Overall, inflation has come down substantially from the decades-high levels seen in 2022, which helped set the stage for the BoC to begin lowering interest rates in 2024.

• The annual inflation rate in Canada was 1.9% in November. This was down from the 2.0% rate in October, which was also what economists expected for November, according to a Bloomberg survey. The BoC is expecting inflation to run close to 2% over the coming months.
• Easing inflationary pressures in November came amid a slowdown in the price growth for shelter. Within the category, mortgage costs declined, reflecting lower mortgage rates as the BoC lowered interest rates by 175 basis points this year.
• Core measures of inflation were unchanged in November, coming in above economists’ expectations. With core inflationary pressures remaining elevated, the BoC likely has room to cut rates further.
• In other news yesterday, data reinforced the relative strength of US consumers. Retail sales in the US rose by 0.7% in November, their third consecutive increase. A relatively resilient consumer is contributing to the US Federal Reserve Board’s relatively cautious stance on lowering interest rates too quickly.

Canadian inflation near 2% reinforces the BoC’s stance that it needed to be aggressive in lowering interest rates. Going forward, the BoC seems poised to keep lowering interest rates but will need to be mindful of how a higher government deficit and potential tariffs could impact the Canadian economy and inflation. At its last meeting, the BoC noted each interest-rate decision would be data dependent.

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