Core inflation pressures still too strong for comfort

The renewed rise in the three-month annualised rates of CPI-trim and CPI-median inflation in November call into question the idea that the Bank of Canada has already finished its tightening cycle. Those rates are not published by either Stats Can or the Bank, but our calculations suggest that the three-month annualised rate of CPI-trim jumped back up to 3.8% in November while the CPI-median rate rose to 2.4%, pushing an average of the two back above the top end of the Bank’s 1% to 3% inflation target range. While those measures will probably edge down again in December, we suspect it would take a much larger decline to prevent the Bank from enacting one last interest rate hike at its next meeting in late January, particularly if the Bank’s quarterly consumer and business surveys show that inflation expectations remain elevated. While firms’ inflation expectations have probably eased, the renewed rises in food and shelter inflation in November suggest that consumers’ inflation expectations will be slower to drop back.