Canadian headline inflation likely accelerated in November

Canadian inflation data for November is set to release tomorrow. According to a TD Economics research report, the headline inflation is likely to have firmed to 2.2 percent, owing to a considerable tailwind from base-effects, with prices down 0.1 percent sequentially. Energy prices are the main catalyst for the month-over-month decline, as a change from summer to winter gasoline blends weighs on the price at the pump.

While this is usually for the fourth quarter, last November recorded a much sharper fall in gasoline prices because of weaker crude oil prices, and the base effects from this month should eliminate a 0.2 percentage point drag from gasoline on a year-ago basis.

Meanwhile, food prices are likely to have contributed positively on higher crop prices along with a modest fall in the Canadian dollar, while shelter should give another tailwind as the housing market recovery feeds into higher homeowner replacement costs.

“Muted base-effects to CPI-trim and CPI-median suggest a high hurdle to any pullback in core CPI, which should leave the average of the three near 2.1 percent y/y and allow the BoC some patience as they monitor incoming activity data for signs of slowdown”, added TD Economics.