Economists see November inflation staying at 2% or slightly rising

Economists are expecting the November inflation reading to be unchanged, in line with the Bank of Canada's two per cent target. A Petro-Canada gas station is seen in Mulmur, Ont., on Oct. 27, 2024.THE CANADIAN PRESS/Chris Young

Inflation likely hovered at or a little above the Bank of Canada's two per cent target rate in November, economists expect, after Taylor Swift's Eras Tour swept through Toronto and offered a temporary economic boost.

As of Friday, economists on average estimate the consumer price index rose two per cent, according to a Reuters poll. That would be unchanged from the October reading.

However, CIBC senior economist Andrew Grantham says inflation for the month could tick higher to 2.1 per cent, adding that some core inflation measures could look a bit stronger as well.

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Then there's the Taylor Swift of it all.

"A lot of the pickup in inflation that we're expecting in November is going to be due to some temporary factors surrounding the arrival of Taylor Swift within Canada," Grantham said.

He said her concerts, which took place over two weeks in Toronto (the Vancouver performances won't be captured in this data), affected prices for hotels, restaurants and concert tickets.

"If you get a big enough acceleration in inflation in those areas, it can impact headline numbers," he said.

Capital Economics is also forecasting a slight uptick in inflation, thanks to the global pop star. It predicts headline inflation for November rose to 2.2 per cent.

"Based on the 'Taylor Swift effect' seen on hotel and airfare prices in other developed countries, we judge core services prices rose by 0.7 per cent month-over-month," said Ruben Gargallo Abarques, assistant economist at Capital Economics.

Volatile aspects of inflation — food and energy — were not affected by Swiftonomics.

And energy prices are expected to remain similar to October on a year-over-year basis, Abarques predicts.

The price of gasoline was the driving factor for overall inflation jumping to two per cent in October, up from 1.6 per cent the previous month.

"Though gasoline prices were largely unchanged in November, that will still result in a seasonally adjusted rise of close to three per cent," Abarques wrote in a note to clients.

"Together with a jump in natural gas prices in Alberta, energy prices probably rose by three per cent month-over-month — boosting CPI by 0.2 per cent," Abarques wrote.

RBC economists Nathan Janzen and Claire Fan predict food inflation will likely hold steady year-over-year at around three per cent.

Overall, RBC economists predict inflation edged lower to 1.9 per cent in November.

"Canadian consumer price index growth is expected to have eased slightly in November after picking up in October," they wrote in a note to clients.

Shelter inflation has also shown signs of slowing down in November, they wrote.

Mortgage interest costs were up 15 per cent from a year ago in October "but that is down from a 30 per cent growth peak in 2023 and will continue to slow following interest rate cuts," Fan and Janzen said.

The Bank of Canada continued to ease its key rate with a half-percentage point cut earlier this week, its fifth consecutive rate cut since June as the job market significantly cools and employers pull back on hiring. The latest move brought its key interest rate down to 3.25 per cent.

Going forward, Grantham sees inflation decelerating in December and January as the federal GST holiday rolls in for the next two months. However, the impact of the tax break will be split in December since it only took effect halfway through the month.

The federal government announced last month it would waive the five per cent sales tax on some products between Dec. 14 and Feb. 15.

"This is just something which is temporarily going to make the inflation numbers look weaker and then as that ends, the inflation numbers look stronger again after that fades in February and March," he predicted.

The Bank of Canada expects the GST holiday to temporarily lower inflation to around 1.5 per cent in January.

Despite the short-lived effects of the GST break, there are longer-term factors in store for inflation in the new year as Donald Trump threatens to add a 25 per cent tariff on Canadian goods. If it comes to pass, the move would push inflation above the Bank of Canada's target of two per cent.

It's difficult to know how exactly tariffs would affect inflation but Grantham said it could be "significant."

"If (a) tariff threat does materialize and we do retaliate, we will see an upward pressure on inflation but it will be kind of a one-time price increase," he said, adding it would impact inflation numbers for one year until tariffs drop out of the calculation and inflation returns to normal levels.

This report by The Canadian Press was first published Dec. 15, 2024.