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Canada’s inflation rate unexpectedly held steady in November as higher prices for housing put pressure on consumers, although this was mitigated by lower prices for gasoline and smartphone plans.

The Consumer Price Index rose 3.1 per cent in November from a year earlier, matching October’s increase, Statistics Canada said Tuesday in a report. Analysts on Bay Street were expecting the inflation rate to ease to 2.9 per cent.

While the inflation rate has more than halved from its peak last year, the Bank of Canada has stressed that bringing inflation sustainably back to its 2-per-cent target could be bumpy and drawn out. The central bank has been reticent to speak about cutting interest rates, tempering some of the enthusiasm that’s swept through stock and bond markets of late.

There were, however, some signs of progress in Tuesday’s report. Various core measures of inflation – which remove volatile price movements in the CPI – continued to slow, and inflation is tracking below the Bank of Canada’s projected average of 3.3 per cent in the fourth quarter.

On a monthly basis, the CPI rose 0.1 per cent in November, whereas analysts were expecting a slim decline.

“Today’s moderately disappointing result drives home the point that we still have an inflation fight on our hands – in case there was really any doubt,” Bank of Montreal chief economist Doug Porter wrote in a note to clients. “Still, the bigger picture remains intact: The underlying inflation trend is lower, the economy is chilly, and the Bank is expected to begin trimming rates around mid-year.”

To bring inflation under control, the Bank of Canada has raised its benchmark interest rate to 5 per cent – the highest level since 2001 – from just 0.25 per cent in early 2022. It appears the economy is struggling under the weight of those rate hikes: Growth has stalled, unemployment is rising and consumers are spending less.

Bank of Canada Governor Tiff Macklem said on Friday that inflation could get “close” to the bank’s 2-per-cent target by late next year, though he also said it was “still too early to consider cutting our policy rate.” The BoC’s U.S. counterpart, the Federal Reserve, has projected three quarter-point rate cuts in 2024.

Tuesday’s report showed that services remain a major source of inflationary pressure. Over all, prices for services rose 4.6 per cent in November from a year earlier, matching the increase in October.

Rents climbed by 7.4 per cent over the past year, down from 8.2 per cent in October, but still well above typical levels – a sign of how fervent demand for housing and a relative lack of units are driving up prices. Mortgage interest costs are still rising by around 30 per cent, year over year, as homeowners face the impact of higher borrowing rates.

Excluding shelter costs, the annual change in CPI was 1.9 per cent in November, unchanged from October.

Statscan noted that prices for travel tours rose 26.1 per cent on a year-over-year basis, which the agency said was “mainly attributable to events held in destination cities in the United States during November.”

Grocery prices rose 4.7 per cent on an annual basis – the first reading below 5 per cent since November, 2021. This moderation was foreshadowed by weaker costs at earlier stages of the supply chain.

In some cases, consumers are enjoying outright declines in prices. Those for cellular services have dropped 23 per cent over the past year. Statscan noted there were “a variety of promotions across the industry” before Black Friday.

One of the more promising signs in Tuesday’s report is that some measures of core inflation are simmering down. The Bank of Canada’s preferred measures – CPI-median and CPI-trim – rose at three-month annualized rates of 2.3 per cent and 2.6 per cent, respectively. They were in the 3.5-per-cent range in recent months.

“Today’s report represents less progress in taming inflation than we had expected,” Royce Mendes, head of macro strategy at Desjardins Securities, wrote to investors. “That said, there are still a number of signs pointing to a further normalization in underlying price pressures.”

Despite the miss in headline CPI, economists and investors continue to expect the Bank of Canada will start to lower its benchmark interest rate in the spring or summer of 2024. In anticipation of those moves, bond yields have tumbled since October, a welcome development for people renewing their mortgages.

Interest rate swaps, which capture market expectations about monetary policy, are pricing in a quarter-point cut at the central bank’s April meeting, according to Bloomberg data. This won’t necessarily come to fruition and expectations change frequently on account of new economic figures.

Canadians appear to be feeling the pressure from higher interest rates. The household debt-service ratio – which measures obligated debt payments as a percentage of disposable income – has climbed to a record high of 15.2 per cent, while consumer spending has fallen on a per-capita basis.

Canada’s economic growth has effectively flattened over the past two quarters, in part because of the slowdown in consumption. Growth is expected to remain muted as restrictive interest rates weigh on the economy.

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