Economists at Canada’s biggest banks believe the pace of headline inflation slowed in November as interest rate hikes made over the past year continued to take hold. But they expect pressure on core inflation to remain persistent, casting a potential shadow over what otherwise should be good news for Canadian consumers.

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Economists expect the worst is over for headline inflation, but core inflation could prove more persistent Back to video

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The rough consensus among economists is that numbers released on Dec. 21 will show inflation eased in November from the 6.9 per cent annualized pace posted in October.

Douglas Porter, chief economist at the Bank of Montreal, said in a recent podcast that it appears that the worst is over for headline inflation, which has already declined from a peak of 8.1 per cent in June primarily because of easing energy prices. The same can’t be said for core readings.

“Meanwhile, it’s a very different picture when we look at underlying inflation and I think that’s where the Bank of Canada and the Fed’s focus is going to be trained on now, and in that case, we really haven’t seen any relief whatsoever,” Porter said on an episode of BMO’s Smarter Investing Podcast this week. “In Canada, in fact, if anything, core inflation is still moving higher.”

Core inflation readings exclude primarily food and energy prices. Without them, inflation has been tracking higher, hitting 5.3 per cent in October compared to  4.2 per cent in the first quarter. Porter said that even if Canadians continue to see easing price pressures at the gas pumps, easing core measures will be frustratingly slow.

BMO economists are expecting headline inflation to slow by about four ticks to a year-over-year pace of 6.5 per cent as November tends to see a lull in consumer prices, but food is an exception.

“November is historically the second-strongest month of the year for food prices, and we’re not expecting any difference this year, with a near-one-per-cent increase,” wrote BMO senior economist Robert Kavcic in a Monday note to clients. “Beyond food and energy, November tends to be a soft month for inflation.”

Kavcic added that as shelter costs ease from lower home prices this year, related categories such as furniture and bedding have seen a slowdown as well.

Economists at the Royal Bank of Canada also expect inflation to cool in the month of November, but not by as much as BMO. RBC Economics is forecasting that the consumer price index growth will cool to 6.7 per cent on easing global inflation, though economists expect food prices to be ten per cent higher compared to last year.

“The (Bank of Canada) has pointed to those early signs as a reason that interest rates may not need to rise further following a 50 basis point rate hike last week,” wrote economists Nathan Janzen and Carrie Freestone in a Dec. 19 note. “The economy is also expected to soften in coming quarters as 400 basis points of interest rate hikes in 2022 cut into household purchasing power, further easing inflation pressures.”

Over the year, the central bank has hiked the policy rate to 4.25 per cent in what it has described as a “front-loading” strategy to stamp out decades-high inflation. Bank of Canada governor Tiff Macklem is aiming to avoid a repeat of the 1970s and ‘80s, when inflation ran rampant and jumped back up a number of times before it was finally quelled, even if it means tipping the country into a recession.

The Bank of Canada closed out the year with a 50 basis point hike and suggested in its accompanying statement that the governing council may have to pause and reflect on whether more rate hikes will be necessary.

• Email: shughes@postmedia.com | Twitter: StephHughes95