The big picture remains positive on inflation, says RBC

Today’s CPI report was a surprise, but it shouldn’t take away from the fact that real progress continues to be made on inflation.

That’s the takeaway from a post CPI report from RBC economists Claire Fan and Abbey Xu today.

This morning, Statistics Canada released the November CPI numbers which showed inflation held steady at 3.1 per cent. RBC last week issued a report saying it expected November’s CPI to come in at 2.9 per cent. The economists explained the disparity.

“Headline CPI in Canada surprised to the upside in November with a 3.1% reading year-over-year,” they said. “That matched the rate in October and was above our and consensus’ expectation for the headline reading to slip back under the top end of the BoC’s 1% to 3% inflation target range. Much of the surprise came from a larger-than-expected surge in travel tour prices (+27% year-over-year) and is likely to be unwound in December. StatCan attributed the jump to “events held in destination cities in the United States during November”.

As odd as that data point is, RBC says the broader picture shows inflation clearly in check and they note that food and energy inflation both slowed in November.

“Today’s CPI report was an upside surprise that followed slower prints in prior months, and should not have changed the story that inflation has been broadly easing in Canada, alongside weakening macro backdrop,” Fan and Xu said. “Broader ‘core’ measures of price growth still improved in November and some of the largest contributors to near-term price pressures, namely mortgage interest costs and rents actually eased by more than expected. If anything, the release today serves as a reminder that inflation readings can still be “sticky”, and why we continue to expect a cautious approach as the BoC starts to think about when to begin cutting interest rates. Our expectation is for the first rate cut to come around mid-year 2024, contingent on further (but widely expected) softening in CPI readings in the months ahead.”