Canada's annual inflation rate accelerates, beats estimates

Julie Gordon
·2-min read
FILE PHOTO: A woman browses in the fruit section of a Loblaw supermarket in Collingwood

By Julie Gordon

OTTAWA (Reuters) - Canada's annual inflation rate accelerated in November, beating analyst expectations, on higher shelter prices as rents climbed and home replacement costs increased, Statistics Canada said on Wednesday.

The annual rate accelerated to 1.0% up from a year-on-year increase of 0.7% in October and ahead of analyst expectations of a slight increase to 0.8% in November.

"It's a bit firmer than I had guessed, at least on the headline," said Derek Holt, head of Capital Markets Economics at Scotiabank.

"I thought the housing component was particularly interesting," he added. "We are getting definite house price contributions to overall inflation."

The Canadian dollar was trading 0.4% lower at 1.2746 to the greenback, or 78.46 U.S. cents, giving back some of its recent gains.

While inflation was at its fastest pace since February, the headline number still remains well below the Bank of Canada's 2% target. That will likely leave the central bank in its current holding pattern, said economists.

"The Bank of Canada has signaled pretty clearly that it would take a lot for them to do anything before 2023 in terms of raising interest rates," said Doug Porter, chief economist at BMO Capital Markets.

Still, Porter did not fully discount the option of a "micro cut" from the central bank. The Bank of Canada has indicated it could cut rates below the current 0.25%, without going negative, if the second COVID-19 wave worsens.

The three core measures of inflation were flat in November. The common measure, which the Bank says is the best gauge of the economy's underperformance, was 1.5%, with trim at 1.7% and median at 1.9%.

Rent prices rose 1.5% in the 12 months to November, Statscan said. The homeowners' replacement cost index, linked to the price of new homes, rose 1.1% in November, the ninth consecutive monthly gain.

This as Canada's national average resale selling price rose 13.8% in November compared with the previous year, data released on Tuesday showed.

Food prices also gained 1.0% in November, while gasoline prices were down 11.9% year-over-year on low domestic and international demand.

(Reporting by Julie Gordon in Ottawa; additional reporting by Dale Smith, Fergal Smith and Nichola Saminather; editing by Jonathan Oatis)