Canadian Inflation Slows, Mortgages Pull Back While Rents Accelerate – Better Dwelling

Canadian inflation slowed further last month, but the details show why few people may have felt it. Statistics Canada (Stat Can) data shows progress for the headline measure of the Consumer Price Index (CPI), which decelerated in November. The agency reported a broad-based slowdown, though half of the major components were still growing significantly above the target. One of those components is Shelter, where mortgage interest growth slowed and rents resumed acceleration.  

Canadian Headline CPI Slows, BoC-Preferred Core CPI Unchanged

Canadian headline inflation slipped lower in November. CPI’s annual growth fell to 1.9% in November, down from 2.0% in October. The 0.1 point decline was almost entirely due to a base effect in gasoline prices. CPI is back up to 2.0% when gasoline is excluded from the measure.   

Most attention goes to headline inflation, but the Bank of Canada (BoC) uses Core CPI. Despite including the headline on their frontpage, the Core measures are preferred since they minimize short-term volatility that can skew growth. These numbers showed much less progress last month, with annual growth of both Median (+2.7%) and Trim (2.6%) measures unchanged last month. This implies the central bank’s take on the data should be a little different from the general take, but who knows. Back to headline data! 

Major Inflation Components Slow, But Half Remain Above Target

Stat Can notes the deceleration was broad based amongst the 8 major components. Though only 4 out of 8 were below the target rate, and driving the return to normal. Those categories include Transportation, and Recreation, Education & Reading. It also includes Household Operation, Furnishings & Equipment, and Clothing & Footwear—both which the agency notes showed lower prices due to Black Friday discounts being steeper than last year.  

Source: Statistics Canada. 

The remaining 4 components were significantly above target, which included Food, Health, Alcohol, and Shelter. These 4 categories generally make up a larger share of recurring spending for households. However, the influence on CPI is less significant after the most recent methodology change. 

Canadian Mortgage Interest Costs Slow, Rents Accelerate

Speaking of Shelter and methodology, the index shows lower cost mortgages are back to boosting rents. Annual growth for the component was 4.6% in November, shedding 0.2 points from the rate in October. Mortgage interest (+13.2%) remained lofty, but shed a point from the rate and helped to create most of the downward pressure for the component. Meanwhile the return of cheaper mortgages and fuel for investors helped drive a re-acceleration of Rent (+7.7%), which added 0.4 points to the rate in the month. 

Mortgage interest has been a major driver of inflation and helped to bring headline CPI down. This is due to the circular inclusion of the measure—inflation determines mortgage interest, and mortgage interest is one of the largest influences on CPI. As a result, rate adjustments directly impact the CPI—rising as rates climb and falling as rates are slashed. Most countries, including the US, don’t include it as it tends to skew inflation to the downside.

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