E-Sight December 16: Canadian Inflation Inches Higher, Revised Deloitte Economic Forecast to be Released Tomorrow

Canadian price growth continues to slowly accelerate from recent lows, with the Consumer Price Index (CPI) increasing 1.0% in November, a 0.3 percentage point increase from the 0.7% growth observed in October.

Gasoline continues to post sharp year-over-year price declines due to subdued global demand for fuel. Excluding the impact of gasoline, inflation was up 1.3% relative to last year.

The pandemic has renewed interest in housing-related activity, as evidenced by soaring resale home markets and strong growth in durable goods, like household furnishings. Homes are also a key driver of inflation with a large part of the CPI devoted to capturing how much it costs to own, operate and furnish one’s residence.

Last month, the shelter component of the CPI was up by 1.9% with higher prices for new homes exerting upward pressure on the index and lower mortgage rates reducing price growth. Just recently, a Canadian bank was advertising a five-year variable rate mortgage for under 1% and with mortgage rates so low, the mortgage interest rate component of the CPI index posted its largest decline since 1994.

Some Canadians are also paying far less to heat their homes as winter sets in across the country. Prices for fuel oil and other fuels were down 23.3% in November and this helped push overall inflation into negative territory in PEI and New Brunswick where furnace fuel oil is more common.

On the other hand, prices for durable goods continue to post strong growth as consumers look to make their living spaces more comfortable. Furniture prices were up 2.8% and household appliances up 2.9% last month.

Core inflation continues to outpace growth in headline inflation although it did not increase relative to previous months. The average of the Bank of Canada’s three measures of core inflation held steady again this month at 1.7%, with CPI-common experiencing the softest growth (1.5%) and CPI-median the strongest (1.9%).

Data for October wholesale trade was also released today and showed continued growth in the sector with sales and volumes both up by 1.0% on the month. Wholesales sales are now 3.3% above pre-pandemic levels with all major subsectors expect motor vehicles and motor vehicle parts and accessories above their February levels. While activity has been robust since the spring reopening, the renewed shutdowns that began across the country in November are likely to weigh on the sector until restrictions are able to be eased again.

While inflation has perked up since bottoming out in May we see no concern that price pressures will build in a sustainable way given the enormous excess slack in the economy and the fact that economic growth has slowed significantly. Stay tuned for more details on our latest forecast in our Economic Outlook Executive Summary, available tomorrow.

Categories: Canadian Inflation, E-Sight, Economics, Uncategorized

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