Canada Inflation Rate Crosses 2% Level in November

FeaturesDow Jones Newswires

Annual inflation in Canada picked up steam in November and crossed the 2% level for only the second time in three years, on the strength of higher prices for gasoline, food and cars.

Canada's consumer-price index rose 2.1% on a year-over-year basis in November, Statistics Canada said Thursday, following a 1.4% advance in October. CPI in November slightly topped market expectations for a 2% rise, according to economists at Royal Bank of Canada.

Continue Reading Below

On a month-over-month basis, prices rose 0.3%.

Analysts expected a strong reading in November, given the weak level of prices a year ago. Further, the rise in crude oil in November lifted gasoline prices by nearly 20% on a 12-month basis. Excluding gasoline, Canada's annual inflation rate climbed 1.5%, versus a comparable 1.3% in the previous month.

Underlying, or core, inflation also exhibited strength. Underlying prices rose in a range from 1.5% to 1.9%, based on the preferred gauges used by the Bank of Canada for an average of 1.7%, or the highest level in over a year.

The strong reading on inflation emerged at the same time as a better-than-expected report on retail sales. Retail sales surged in October by 1.5%, crushing expectations for a muted gain, on robust demand for vehicles and alcoholic beverages.

The Bank of Canada sets the level of interest rates to achieve and maintain 2% inflation, or the midpoint of the target range. After two quarter-point rate rises in July and September, lifting the policy rate to 1%, the central bank said it was adopting a cautious approach -- due to the risk posed by low inflation.

For the bulk of 2017, the annual inflation rate in Canada has remained below 2%, hitting a two-year low in June of 1% before steadily climbing higher. In a speech last month, the Bank of Canada's senior deputy governor, Carolyn Wilkins, said the central bank "may become disproportionately concerned" about low inflation, and hence "puts a greater weight on the downside risk."

In a number of advanced economies, inflation has run short of expectations despite a solid pickup in growth, leading some policy makers and economists to worry about the ability of central banks to manage inflation and inflation expectations.

Bank of Canada Governor Stephen Poloz said in remarks last week he is willing to keep rate policy "quite stimulative" and let upside inflation risks build until there is evidence spare capacity in the labor market has evaporated and uncertainties in the economy have faded.

In November, seven of the eight major Canadian CPI components rose on an annual basis. Transportation prices rose 5.9%, mostly on the strength of gasoline prices. However, new car prices also accelerated 3.6%, after a 1.9% gain in the previous month.

Food prices rose 1.6% on a one-year basis. Month over month, food prices advanced 0.8%, which the data agency said was the largest monthly gain in nearly two years.

Shelter costs rose 1.2%, led by a 3.6% increase in the homeowners' replacement cost -- which represents how much an owner must spend to maintain a residence's market value.

The cost of goods advanced 2%, which marks the biggest increase for this category since January, 2016. The price paid for services -- such as haircuts, accounting, and plumbing -- climbed 2.3%.

On a seasonally adjusted basis, inflation rose 0.5% in November month-over-month.

OTTAWA -- Annual inflation in Canada picked up steam in November and crossed the 2% level for only the second time in three years, on the strength of higher prices for gasoline, food and cars.

Canada's consumer-price index rose 2.1% on a year-over-year basis in November, Statistics Canada said Thursday, following a 1.4% advance in October. CPI in November slightly topped market expectations for a 2% rise, according to economists at Royal Bank of Canada.

On a month-over-month basis, prices rose 0.3%.

Analysts expected a strong reading in November, given the weak level of prices a year ago. Further, the rise in crude oil in November lifted gasoline prices by nearly 20% on a 12-month basis. Excluding gasoline, Canada's annual inflation rate climbed 1.5%, versus a comparable 1.3% in the previous month.

Underlying, or core, inflation also exhibited strength. Underlying prices rose in a range from 1.5% to 1.9%, based on the preferred gauges used by the Bank of Canada for an average of 1.7%, or the highest level in over a year.

The strong reading on inflation emerged at the same time as a better-than-expected report on retail sales. Retail sales surged in October by 1.5%, crushing expectations for a muted gain, on robust demand for vehicles and alcoholic beverages.

"Inflation suddenly doesn't feel so soft in Canada," said James Marple, economist at TD Bank. "With economic momentum appearing to hold up into the fourth quarter, reinforced in the retail sales report, the case for the Bank of Canada to follow the Federal Reserve in hiking interest rates is building."

The Canadian dollar rose 0.6% against the U.S. dollar in trading following the release of inflation and retail data, and traders lifted the probability of a Bank of Canada rate increase in January to almost 50:50 on the overnight index-swap market, according to BMO Capital Markets.

The Bank of Canada sets the level of interest rates to achieve and maintain 2% inflation, or the midpoint of the target range. After two quarter-point rate rises in July and September, lifting the policy rate to 1%, the central bank said it was adopting a cautious approach -- due to the risk posed by low inflation.

For the bulk of 2017, the annual inflation rate in Canada has remained below 2%, hitting a two-year low in June of 1% before steadily climbing higher. In a speech last month, the Bank of Canada's senior deputy governor, Carolyn Wilkins, said the central bank "may become disproportionately concerned" about low inflation, and hence "puts a greater weight on the downside risk."

In a number of advanced economies, inflation has run short of expectations despite a solid pickup in growth, leading some policy makers and economists to worry about the ability of central banks to manage inflation and inflation expectations.

Bank of Canada Governor Stephen Poloz said in remarks last week he is willing to keep rate policy "quite stimulative" and let upside inflation risks build until there is evidence spare capacity in the labor market has evaporated and uncertainties in the economy have faded.

In November, seven of the eight major Canadian CPI components rose on an annual basis. Transportation prices rose 5.9%, mostly on the strength of gasoline prices. However, new car prices also accelerated 3.6%, after a 1.9% gain in the previous month.

Food prices rose 1.6% on a one-year basis. Month over month, food prices advanced 0.8%, which the data agency said was the largest monthly gain in nearly two years.

Shelter costs rose 1.2%, led by a 3.6% increase in the homeowners' replacement cost -- which represents how much an owner must spend to maintain a residence's market value.

The cost of goods advanced 2%, which marks the biggest increase for this category since January, 2016. The price paid for services -- such as haircuts, accounting, and plumbing -- climbed 2.3%.

On a seasonally adjusted basis, inflation rose 0.5% in November month-over-month.

Write to Paul Vieira at paul.vieira@wsj.com

(END) Dow Jones Newswires

December 21, 2017 09:53 ET (14:53 GMT)