The Canadian dollar was broadly steady against most major currencies on Monday following the release of inflation data that showed price growth remained unchanged.
Inflation in Canada was flat last month, while core inflation measures recorded a general slowdown, as faster food and some goods prices were offset by slower growth in services prices.
Data from Statistics Canada released on Monday showed headline inflation rose 2.2% year on year in November, matching the pace seen in October and coming in below the $2.3% median forecast in a Bloomberg survey of economists.
On a monthly basis, the consumer price index increased 0.1%, in line with expectations.
Following the data, government bonds rallied, pushing the benchmark two-year government bond yield down to 2.57% by 9:48 a.m. Ottawa time. At the same time, the Canadian dollar, or loonie, trimmed earlier gains against the US dollar.
The Bank of Canada’s preferred core inflation measures — known as the median and trim — slowed to an annual pace of 2.8%, down from 3.0% previously. On a three-month moving average basis, these measures eased to 2.3% from 2.6% in October.
The central bank has recently placed less emphasis on these specific indicators, noting that a broader range of measures suggests underlying inflation is hovering around 2.5%.
Veronica Clark, an economist at Citi, told BNN Bloomberg Television that there are “some encouraging signs that core inflation is slowing,” while adding that rental costs are still showing “a degree of stickiness.”
Overall, underlying price pressures eased or stabilized in November. Excluding food and energy, prices rose 2.4% year on year, down from 2.7% in October. Inflation excluding gasoline increased 2.6% for the third consecutive month, while the central bank’s former core measure — CPI excluding eight volatile components and indirect taxes — remained steady at 2.9%.
Despite this, inflation pressures broadened, with the share of goods and services posting annual inflation above 3% rising to around 42% of the CPI basket, up from 34% previously.
Overall, the report shows headline inflation continuing to move toward the central bank’s 2% target, even as some core measures remain closer to 3%. The Bank of Canada is unlikely to be alarmed by lingering core pressures, given its view that slack persists in the Canadian economy amid the impact of US tariffs on key sectors, weighing on business investment and consumer spending.
The central bank held its policy rate unchanged at 2.25% last week and reiterated that borrowing costs are “at about the right level” to support growth while keeping inflation under control. Governor Tiff Macklem set a high bar for any policy shift, saying the bank would act only in the event of a “new shock or an accumulation of evidence” that would “materially change the outlook.”
Policymakers expect inflation to remain close to 2%, a level it has hovered around for more than a year.
Charles St-Arnaud, chief economist at Servus Credit Union, said in an email that there are still “some signs that core inflation remains sticky, with momentum in certain measures staying elevated and inflationary pressures broadening.” He added that “there is nothing in today’s report that would cause immediate concern for the Bank of Canada or affect near-term monetary policy.”
Royce Mendes, managing director and head of macro strategy at Desjardins Securities, said in a note to investors that the data point to generally “benign price pressures.” He added that policymakers can take comfort that a stagflationary environment is not emerging, and that downside risks to growth and inflation are likely to become more significant in the months ahead.
Mendes noted that ongoing uncertainty surrounding the future of the US–Mexico–Canada Agreement is expected to weigh on economic activity, while fiscal stimulus is unlikely to play a major role until later in the year.
In November, lower prices for travel and accommodation, along with slower rent inflation, weighed on headline inflation. These effects were partly offset by higher grocery prices and a smaller decline in gasoline prices.
The drop in travel prices was partly driven by base effects, following Taylor Swift concerts held in Toronto in November 2024.
Food prices rose 4.7% in November, the largest increase since December 2023, driven by a surge in fresh fruit prices and continued strength in beef and coffee prices.
Price growth accelerated in five provinces, led by New Brunswick.
This report marks the first of two inflation releases ahead of the Bank of Canada’s next policy decision on January 28. Traders expect the central bank to keep rates unchanged until at least October 2026, with a rate hike priced in around that time.
In currency markets, the Canadian dollar was steady against the US dollar at $0.7263 as of 21:35 GMT.
Australian dollar
The Australian dollar fell 0.2% against the US dollar to $0.664 at 21:35 GMT.
US dollar
The US dollar index slipped 0.1% to 98.3 by 20:57 GMT, after touching a high of 98.4 and a low of 98.1.
Investors are awaiting the release of US nonfarm payrolls data for November on Tuesday, including the delayed October reading.
US consumer inflation data is also due later this week, which is expected to play a key role in shaping Federal Reserve policy expectations.
New York Fed President John Williams said on Monday that last week’s US rate cut has placed monetary policy in a good position to navigate the period ahead, adding that he expects inflation to ease as the labor market cools.
He emphasized that returning inflation to the 2% target is “critically important,” provided it does not create undue risks for the labor market.
