November 2024 CPI: Inflation didn’t move as swiftly as expected.

“The ‘Swift’ surge in prices didn’t quite take hold. While some hotel rates in concert cities hit record highs in November, overall inflation continues to come in below target. The Bank of Canada’s weaker outlook for fourth-quarter GDP growth points to slower price gains ahead. By fast-tracking rates to a more neutral stance at their last meeting, the Bank made the right call. Looking ahead to the new year, we can expect a slower, more measured approach as they take stock of how monetary policy is playing out across the Canadian economy.”

Headline

• Shelter prices are still driving inflation, but there’s some progress. Growth in shelter costs slowed to 4.6% in November, down from 4.8%, thanks to easing mortgage interest costs and lower household expenses like insurance and replacement costs. Mortgage interest costs, while still elevated, rose 13.2%—the slowest pace in two years. On the flip side, rent prices reversed earlier progress, climbing 7.7%, with limited supply likely keeping rents high into 2025. Meanwhile, home prices are rebounding from negative growth as sales activity picks up and interest rates trend downward.
• Food prices remain a key driver of inflation. In November, food inflation rose 2.8%, with restaurant prices continuing to outpace grocery store prices year-over-year. That said, both categories held steady compared to October. The GST holiday, which includes restaurants and grocery items, is expected to offer some relief in the months ahead.
• Gasoline prices only declined 0.5% in November, down to a lesser extent than in October’s decline of 4%, didn’t keep prices down as much as last month. Price growth on a monthly basis was muted.
  Goods inflation was flat in November on an annual basis, with non-durable goods the only category with accelerating price growth. Clothing and footwear prices are down for the eleventh consecutive month, declining 3.1%. Black Friday price reductions also contributed to lower prices for some goods. Heading into next month, some children’s clothes will be subject to the GST holiday keeping prices depressed.
• Services inflation slowed to 3.5% in November, down from 3.6%. The Taylor Swift Eras Tour in Canada lifted prices for accommodation in some markets to record levels. Ontario accommodation prices grew 24% in November annually, recording the highest monthly rise in November (+11%) ever recorded. This was expected as concertgoers descended upon Canada’s biggest cities. (See “Taylor Swift effect”)

Provincial and regional inflation

• Inflation accelerated in New Brunswick, Nova Scotia, Prince Edward Island, and Newfoundland and Labrador. Prices slowed in all other provinces except Saskatchewan which saw annual prices stay the same.

Outlook and implications

• November CPI came in below the inflation forecast in the Bank of Canada’s October Monetary Policy Report, which expected inflation to grow of 2.3% year-over-year. The Bank remains cautious about balancing inflation targets, aiming to avoid undershooting the 2% benchmark. Short-run momentum indicators suggest inflation won’t undershoot for much longer, but price pressures should be contained as 61% of the basket is growing at or below 2%.
• The Federal GST holiday on select items, which began on December 14 and will last till February 15, 2025, will lower prices mechanically over the next few months. It will be difficult to assess trend in both economic activity and in prices for some categories subject to the tax break.
• Markets extended pricing for a 25 basis point rate cut at the Bank of Canada’s January meeting. There’s room for rates to move lower, reaching a neutral stance more quickly. We expect this to be closer to 2% as we approach spring 2025. The good news for Canadians is that elevated prices are behind us as we look forward to the new year.

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