Canada’s annual inflation rate accelerates, beats estimates

OTTAWA — Canada's annual inflation rate accelerated in November, beating analyst expectations, on higher shelter prices as rents climbed and home replacement costs increased, Statistics Canada said on Wednesday.

The annual rate accelerated to 1.0 per cent, up from a year-on-year increase of 0.7 per cent in October and ahead of analyst expectations of a slight increase to 0.8 per cent in November.

"It's a bit firmer than I had guessed, at least on the headline," said Derek Holt, head of Capital Markets Economics at Scotiabank.

"I thought the housing component was particularly interesting," he added.

"We are getting definite house price contributions to overall inflation."

The Canadian dollar was initially trading 0.4 per cent lower at 1.2746 to the greenback, or 78.46 U.S. cents, giving back some of its recent gains.

While inflation was at its fastest pace since February, the headline number still remains well below the Bank of Canada's two per cent target. That will likely leave the central bank in its current holding pattern, said economists.

"The Bank of Canada has signaled pretty clearly that it would take a lot for them to do anything before 2023 in terms of raising interest rates," said Doug Porter, chief economist at BMO Capital Markets.

Still, Porter did not fully discount the option of a "micro cut" from the central bank. The Bank of Canada has indicated it could cut rates below the current 0.25 per cent, without going negative, if the second COVID-19 wave worsens.

The three core measures of inflation were flat in November. The common measure, which the Bank says is the best gauge of the economy's underperformance, was 1.5 per cent, with trim at 1.7 per cent and median at 1.9 per cent.

Rent prices rose 1.5 per cent in the 12 months to November, Stats Can said. The homeowners' replacement cost index, linked to the price of new homes, rose 1.1 per cent in November, the ninth consecutive monthly gain.

This news came as Canada's national average resale selling price rose 13.8 per cent in November, compared with the previous year, data released on Tuesday showed.

Food prices also gained 1.0 per cent in November, while gasoline prices were down 11.9 per cent year-over-year on low domestic and international demand.