Canadian Inflation Stalls W/ Carbon Tax Pause, BoC Preferred Measure Rises

Time for the holidays, which means it’s time for window dressing season—even when it comes to inflation. The Statistics Canada (Stat Can) Consumer Price Index (CPI) stalled within spitting distance of the central bank’s target range in November. Downward pressure was created by falling energy costs, helping create a temporary halt of a carbon levy. Meanwhile the central bank’s preferred measure of inflation was heading in the opposite direction, showing a slight acceleration.  

Canadian Headline Inflation Changed Very Little, Helped By Oil Prices

Canadian headline CPI is stalling, which is what will make most headlines today. Stat Can reported annual growth at 3.1% in November, the same rate as October. The agency attributes upward pressure primarily to rising travel tour costs. It was able to offset the slowing of prices for food, mobile phone service, and oil. Those are some serious travel tour prices.   

Bank of Canada’s Preferred Measure of Inflation Accelerates

Annual growth of the Canadian Consumer Price Index (CPI) and CPI ex-food & energy.

Source: Statistics Canada. 

Canada Paused A Carbon Tax, Helping To Reduce Energy Costs

Energy prices are the big story when it comes to slowing Canada’s inflation. CPI energy’s annual change was a drop of 5.7% in November, 0.3 points lower than October. Oil and other fuels saw prices drop 23.6% over the same period, which had been just 12.6% in October. Stat Can made specific mention of carbon taxes reducing these causes.  

“The temporary suspension of the federal carbon levy on fuel oil contributed to the decline,” wrote the agency.  

Bank of Canada’s Preferred Inflation Measure Accelerated

Headline inflation is what the media generally tracks, but the Bank of Canada (BoC) prefers core inflation. Core inflation excludes food and energy, volatile components heavily influenced by global factors in addition to domestic issues. By excluding these components, the impact of monetary policy on prices becomes a little more clear. 

When energy and food are excluded, we get a slightly different story from headline CPI. Annual growth remains more lofty at 3.5% in November. They glossed over this early in the report, but did feel it was worth mentioning. 

“Excluding food and energy, the CPI increased 3.5% in November, following a 3.4% gain in October,” wrote Stat Can. 

CPI report was mixed in terms of the impact to the economy. The headline data shows price growth is slowing, and that’s generally good news for households. However, the decline was largely due to volatile components, and helped by the temporary suspension of the carbon levy. 

Those expecting rate cuts may be a little disappointed. The BoC’s preferred measures remained sticky and showed minor acceleration last month. It may come down fast in the future, but the current measure is far from supporting cuts. In fact, the data was moving in the opposite direction.