Canada’s November CPI print at 2.90% YoY signals a mild cooling from the persistent 3.10% levels seen over the past four months. This deceleration occurs amid ongoing global supply chain normalization and moderating energy prices. However, core inflation components such as shelter and services continue to exert upward pressure. The data suggests inflation remains above the Bank of Canada’s 2% target, complicating the monetary policy outlook.

Drivers this month

• Shelter costs contributed 0.22 percentage points (pp), reflecting ongoing housing market tightness.
• Energy prices declined, subtracting -0.10 pp from headline inflation.
• Food prices remained stable, adding 0.05 pp.
• Used vehicle prices eased slightly, reducing inflation by -0.03 pp.

Policy pulse

The 2.90% CPI reading remains above the Bank of Canada’s 2% inflation target but below recent prints, suggesting a tentative easing of price pressures. The central bank’s recent rate hikes appear to be moderating demand, but persistent core inflation signals a cautious approach to further tightening.

Market lens

Immediate reaction: The Canadian dollar (CADUSD) strengthened 0.30% within the first hour post-release, reflecting relief at the softer-than-expected inflation. Short-term bond yields (2-year Canada Government Bond) declined by 5 basis points, signaling reduced expectations for aggressive rate hikes.

Core macroeconomic indicators provide essential context for interpreting the CPI dynamics. Canada’s unemployment rate held steady at 5.10%, indicating a balanced labor market. Wage growth remains firm at 4.20% YoY, supporting consumer spending power. Retail sales increased 0.40% month-over-month (MoM) in October, consistent with moderate demand. The housing market shows signs of cooling, with new home starts down 3.50% YoY, easing shelter cost pressures over time.

Monetary policy & financial conditions

The Bank of Canada’s policy rate currently stands at 4.25%, unchanged since the October meeting. Financial conditions have tightened moderately, with mortgage rates rising to 5.10% on average. Credit growth has slowed to 3.20% YoY, reflecting cautious borrower behavior amid higher rates.

Fiscal policy & government budget

Federal fiscal policy remains expansionary, with a 2025-26 budget deficit projected at CAD 45 billion, supporting targeted infrastructure and social spending. This fiscal stance may sustain demand and inflationary pressures in the near term despite monetary tightening.

Historical comparisons show the current 2.90% is below the 3.50% peak recorded in June 2024 but above the 2.50% average from 2022. The recent moderation aligns with global trends of easing commodity prices and supply chain improvements.

Market lens

Immediate reaction: The Canadian dollar (CADUSD) rallied 0.30%, while 2-year government bond yields fell 5 basis points, reflecting market optimism about a slower pace of rate hikes. Inflation breakeven rates for 5-year bonds declined by 10 basis points, signaling reduced inflation expectations.

Looking ahead, inflation in Canada faces a complex interplay of factors. The Bank of Canada’s next moves will depend on whether core inflation shows signs of sustained decline. Fiscal stimulus and wage growth may sustain demand, while global commodity prices and geopolitical risks could introduce volatility.

Bullish scenario (20% probability)

• Core inflation falls below 3% by Q1 2026 due to stronger monetary tightening effects.
• Energy prices stabilize or decline further, easing headline inflation below 2.50%.
• Financial conditions tighten sufficiently to slow wage growth and demand.

Base scenario (60% probability)

• Inflation hovers around 2.80–3.20% through early 2026, with core inflation sticky near 3.30%.
• Monetary policy remains on hold or modestly tightens to balance growth and inflation.
• Fiscal stimulus sustains moderate consumer demand and housing market stabilization.

Bearish scenario (20% probability)

• Supply shocks or geopolitical tensions push energy and food prices higher.
• Wage growth accelerates above 5%, fueling persistent inflation above 3.50%.
• Monetary policy lags, requiring aggressive rate hikes later in 2026.

Canada’s November CPI print of 2.90% signals tentative progress in taming inflation but underscores persistent core pressures. The Bank of Canada faces a delicate balancing act between sustaining growth and anchoring inflation expectations. Financial markets have responded positively to the softer print, but risks from global shocks and fiscal stimulus remain. Structural factors such as housing costs and wage dynamics will shape the inflation path over the medium term.

Investors and policymakers should monitor upcoming CPI releases closely, alongside wage data and commodity prices, to gauge the durability of this inflation moderation.

Key tradable symbols correlated with Canada’s CPI trends include RY (Royal Bank of Canada, sensitive to interest rate changes), CADUSD (currency pair reflecting inflation and monetary policy), BTCUSD (Bitcoin, often viewed as an inflation hedge), ENB (Enbridge, energy sector exposure), and USDCAD (inverse of CADUSD, relevant for cross-border trade impacts).