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Inflation hangs on in November | The Press



The slight drop in the annual inflation rate, from 6.9% in October to 6.8% in November, is disappointing and indicates that the Bank of Canada’s fight against price increases is far from over.

What keeps inflation high?

Despite November’s drop in gasoline prices, other components of the consumer price index (CPI) rose sharply, which explains why the headline rate remained virtually unchanged at 6.8 %. The price of housing, for example, increased by 7.2%, due to the increase in the cost of mortgages and rents. The Bank of Canada therefore contributes to inflation by raising interest rates to combat it. Rising heating costs also supported inflation in the housing category. Above all, food prices made a strong contribution to maintaining the high inflation rate in November. Price inflation at grocery stores, which hit 11% in October, is now 11.4% higher year-over-year. Food inflation has been above the CPI every month since December 2021, Statistics Canada points out. Food is the third largest component of the eight components of the CPI, after housing and transportation.

Why are food prices rising faster than the CPI?

The price of food depends on several unpredictable and uncontrollable factors. The main causes of the widespread rise in food prices are the disruption of supply chains due to COVID-19, the closures of processing plants which have pushed the price of meat up and labor shortages. work, sums up Statistics Canada in a recent study.

Weather conditions also play an important role. Freezes and droughts in the United States have increased the price of fresh and frozen fruits and vegetables in Canada. Canola oil has seen its price increase around the world due to a drought in Canada, which is the world’s largest exporter. Since Russia’s invasion of Ukraine, the prices of fertilizers and oil, which are important inputs to crops, have driven up the price of most grains. Finally, one-off events, such as avian flu, have an influence on prices. The price of chicken is up 9.3% over the past year due to reduced supply due to disease.

Over the past year, oils, coffee and eggs have been the food products whose prices have risen the most, according to Statistics Canada.

Are there any products whose price is falling?

Inflation is widespread. Of the eight components of the consumer price index, six were up in November and only two were down: clothing and footwear, and leisure and reading.

Over the past year, the categories that have contributed the most to inflation have been gasoline, the purchase of motor vehicles and the cost of mortgage interest.

Conversely, the categories that have contributed to lower inflation over 13 months are the cost of video equipment, vehicle registration and internet access services.

Gasoline prices fell 3.6% from October to November, but are still up 13.7% over the past year. Finally, we are starting to see the effect of a return to normal for certain products, the price of which had increased significantly during the pandemic due to disruptions in the supply chain. This is the case for furniture, whose price increase slowed considerably to 8.1% in November after rising above 12% for eight consecutive months.

Is another interest rate hike coming?

Core inflation, which excludes the most volatile components of the consumer price index such as food and energy, is up 5.4% in November, a slightly faster pace than in October (5.3%). The Bank of Canada’s measures of core inflation also accelerated year-over-year and also increased in three-month annualized terms. This is bad news for those who were hoping that the cycle of key rate hikes had ended in December.

“The inflation results leave the door open to another rate hike,” commented Marc Desormeaux, senior economist at Desjardins.

At National Bank, economists Matthieu Arseneau and Alexandra Ducharme admit that the November figure “remains high and constitutes a somewhat uncomfortable level for the central bank”.

The Bank of Canada will have two other important indicators to digest before its next rate decision on January 25th. First, on Friday, there will be the gross domestic product data for the month of October, which promise to be positive, then the Labor Market Survey for the month of December, the results of which are expected on 6 January.

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