Canadian Analysis

The Bottom Line

Headline inflation held at 2.2% in November in Canada, with mixed underlying details. The Bank of Canada’s preferred core measures of underlying inflation mostly eased but those exclude food inflation, that rose to the highest rate since the end of 2023. 

The increase in food inflation was driven by a combination of supply side constraints, including severe weather conditions. And despite Canadian importers not paying tariffs themselves, prices in Canada could still be impacted by U.S. exporters passing on their related cost increases along food manufacturing supply chains. Prices for refined coffee, for example, are rising because of U.S. tariffs on coffee-producing countries, according to Statistics Canada.

There is little that the Bank of Canada can do to offset the impact of supply-side price impacts on food inflation through changes in interest rates. The components that the central bank has more influence on looked somewhat better in November. The BoC’s core inflation measures -CPI trim and median each rose by a subdued 0.1% on a seasonally adjusted basis from October.

Moderating underlying inflation should reinforce that the central bank will not need to pivot to outright interest rate hikes in the near-term, but we also expect the economy has shown enough signs of improvement that additional cuts to the overnight rate will not be needed.

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The details:

• Food inflation in Canada rose to 4.2% in November (year-over-year) from 3.4% in October, led by higher grocery inflation especially fresh or frozen beef (+17.7%) and coffee (27.8%). Inflation for restaurant prices meantime ticked up very slightly to 3.3%. 

• Higher grocery inflation was mostly a product of supply disruptions. Severe drought in parts of Western Canada in earlier years has thinned of the size of cattle herd in Canada, while dry weather in Brazil and Vietnam curbed coffee production and exports to the world.

• Energy prices were still 5% below last year in November despite consecutive monthly increases in gasoline prices since the summer. The negative reading to a large part continues to reflect the impact of the end of consumer carbon surcharges back in April. 

• Excluding food and energy, inflation dropped from 2.7% in October to 2.4% November, dragged by lower inflation in travel services (-7.7%) that in part reflected higher accommodation prices in November 2024 due to Taylor Swift concerts. 

• Shelter inflation eased to 2.3% in November from 2.5% in October, thanks to slower growth in both home rent (+4.7%) and mortgage interest cost (+2.3%), the latter following past Bank of Canada interest rates reductions. 

• Year-over-year growth in the Bank of Canada’s preferred CPI-trim and CPI-median edged lower to 2.8%, from a slower 0.1% monthly growth from October. The same measures on an annualized three-month basis slowed to 2.3% from 2.6% in October.

• The so-called “supercore” CPI measure that further strips goods and shelter from CPI trim was a bit stronger, up 0.2% from October to still higher 3.2% year-over-year reading.

• The breadth of inflationary pressures across the CPI basket widened slightly (by our count), with roughly 54% of components growing faster than 3% on an annualized three-month basis relative to 50% in October. 

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About the Author

Claire Fan is a Senior Economist at RBC. She focuses on macroeconomic analysis and is responsible for projecting key indicators including GDP, employment and inflation for Canada and the US.

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