• Consumer prices up 2.2% year-over-year in December – unchanged from November
  • Energy price growth ticked up to 5.5% year-over-year
  • Measures of underlying inflation still firmly anchored around 2%

The December CPI data was broadly as-expected with most measures of price growth, on balance, holding right around the Bank of Canada’s 2% target rate. Prices at the pump have increased more substantially with the price of gasoline up 7.4% from a year ago. And food prices are still running 3% above year-ago levels. But headline price growth held at 2.2%. Prices excluding food and energy were up 1.8% year-over-year. More importantly from the Bank of Canada’s perspective, their three preferred core measures – the median, trim, and common CPI were all 2.0% or above for the first time since February 2012. The average was 2.1%, still right in a tight 1.9% to 2.1% range that has held since February 2018 (a temporary break out of that range last month in November was revised away). But by our count about 60% of the CPI basket is growing at a 2% rate or higher, and that’s the most broadly based price growth since 2012.

The Bank of Canada will continue to take comfort that underlying inflation trends still look firmly locked around the their objective 2% rate – and not appearing at risk of coming unhinged on either the upside or downside any time soon. They will be less enthused with recent economic growth numbers, with soft-looking manufacturing and wholesale reports for November this week suggesting GDP grew little if at all in Q4 last year after an already sub-trend Q3 gain. We still think that persistent sub-trend GDP growth numbers could yet eventually push the central bank to cut rates. But Canadian growth numbers are often volatile and part of the slowing can be attributed to obviously ‘transitory’ factors like the November CN rail strike. Go-forward external demand worries have eased with the US and China agreeing to a ‘phase 1’ trade deal. Unemployment is still sitting around multi-decade lows and the already low level of interest rates has already stoked a resurgence in Canadian housing markets – and with it the household debt vulnerabilities that the BoC has warned of repeatedly. For now, we expect policymakers will stick with a wait and see approach to monetary policy and look for no-change in the overnight rate at the policy decision later this morning.


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