Inflation eases slightly to 6.8% in November, as food prices continue to soar

Inflation in Canada jumped 6.8 per cent in November, Statistics Canada said on Wednesday, as gas prices eased, but the price of food increased at an even faster pace.

November’s increase in the Consumer Price Index (CPI) marked a slight deceleration in the annual rate, which had risen 6.9 per cent in October. While CPI has fallen from a peak of 8.1 per cent in June, core measures tracked closely by the Bank of Canada edged higher, which some economists say increases the possibility of another rate hike from the central bank early next year.

"Turning the temperature down on inflation is proving to be an achingly slow process, and we suspect this may be a theme for 2023," BMO chief economist Douglas Porter wrote in a research note on Wednesday, calling the inflation reading "disappointingly high" as November is normally a weak month for prices.

"While lower pump prices will help chop next month's rate, the fact that many measures of core inflation are still nudging higher is a clear warning sign of persistent underlying pressures. We are leaning to the view that the Bank of Canada hikes rates one more time in January to 4.5 per cent, and this firm report does nothing to doubt that call."

The headline rise was higher than economist expectations of 6.7 per cent, according to Bloomberg, and down from October's increase of 6.9 per cent. On a monthly basis Statistics Canada said inflation increased 0.1 per cent from October, or seasonally adjusted 0.4 per cent, as a slowdown in price growth for gas and furniture was offset by faster growth in mortgage interest costs and rent.

Mortgage interest costs were up 14.5 per cent annually as the Bank of Canada has aggressively hiked interest rates. November's increase was the largest annual jump since Feb. 1983. The rent index also surged 5.9 per cent in November, with prices accelerating the most in Prince Edward Island (12.6 per cent), British Columbia (7.2 per cent), Ontario (7.1 per cent) and New Brunswick (7 per cent).

Gas prices fell 3.6 per cent on a monthly basis, largely driven by price declines in Western Canada due to the reopening of refineries in the United States. Annually gas prices were up 13.7 per cent, less than the 17.8 per cent year-over-year increase posted in October.

While Canadians may have seen some slight relief at the pumps, grocery bills continue to rise. Food purchased from stores increased 11.4 per cent annually in November, with increases remaining broad based. The price of edible fats and oils surged 26 per cent, coffee and tea was up 16.8 per cent, eggs were up 16.7 per cent, and bakery product prices jumped 15.5 per cent.

Prices increased at a faster pace in five of the eight of major components, including food; shelter; household operations, furnishings and equipment; health and personal care; and alcoholic beverages, tobacco products and recreational cannabis.

What this means for interest rates

Stubborn inflation has prompted the Bank of Canada to embark on one of the most aggressive tightening paths in recent history. The central bank has hiked interest rates 400 basis points since March, bringing its benchmark rate to 4.25 per cent, the highest level since 2008. The bank most recently hiked its benchmark rate by 50 basis points on Dec. 7, but signalled that the tightening cycle may be winding down as the economy shows signs of slowing.

The Bank of Canada's closely watched trim and median core inflation measures were up 5.3 per cent and 5 per cent, respectively. Excluding food and energy, prices were up 5.4 per cent in November.

"Given that the Bank of Canada explicitly stated that it wanted to see those metrics fall further before declaring that material progress toward the inflation target had been made, today’s data will leave the door open to a 25 basis point rate hike in January," managing director and head of macro strategy at Desjardins Royce Mendes wrote in a research note on Wednesday. Mendes still expects the central bank will hit the pause button in January on rate hikes, "but will be monitoring incoming data very closely."

CIBC economist Andrew Grantham also expects the Bank of Canada to leave its benchmark rate as is during its next decision, but added that "it would be nice to see a deceleration in some core measures of inflation in next month's release to be more confident in that call."

"The good news is that inflation is easing, and that will become more noticeable when the big monthly increases seen this spring start to drop out of the annual calculation next year," Grantham wrote in a research note.

"However, the bad news is that it is slower progress than we and maybe even the Bank of Canada was hoping for."

The Bank of Canada is scheduled to deliver its next rate decision on January 25.

Alicja Siekierska is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @alicjawithaj.

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