Canadian consumer prices rose 0.5% month/month in November, at the very high end of expectations and enough to lift the annual headline inflation rate to +1.0% year/year from just +0.1% in the prior month.
The sudden pickup in headline inflation largely reflects base effects -- huge declines in gasoline prices a year ago are dropping out of the calculation, and there’s more to go on that front. So, after a string of four months of negative headline inflation over the summer, we will soon see readings of closer to 2% within the next few months.
For instance, pump prices plunged 21% in November 2008 alone, and another 11.8% last December, versus the 3.2% monthly rise last month.
Looking beyond those wild swings, core prices told a slightly different story last month -- true,
they rose 0.4% m/m, but that was low enough to trim the annual rate to 1.5% from 1.8% y/y. That, too, was a bit above consensus, and it’s also still above the BOC’s call of an average 1.4% pace for all of Q4.
A big story here was auto prices which flared up by just over 5% m/m, as November is the month that new model year prices are captured. However, new car prices shot up an even heftier 7.2% a year ago(when the loonie was sliding). One unusual source of upward pressure last month was telephone services, which jumped 2.3% m/m, and clothing prices posted a 0.5% rise in seasonally adjusted terms.
The bottom line is that headline inflation is bouncing back from the extraordinary lows seen earlier this year, but the more important story here is core inflation, far from the madness of gasoline prices.
Underlying inflation remains a bit hotter than the Bank of Canada expected -- while it’s hardly a
source of concern at 1.5%, at the margin, it makes that much more of a case that "normal interest
rates" will return before too much longer.
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