By Robb M. Stewart


OTTAWA--Consumer prices in Canada rebounded in the final month of last year, a sign the central bank's fight against inflation isn't yet won even after the pace cooled sharply for the year.

The consumer-price index fell 0.3% in November from the previous month and increased 3.4% from a year earlier, the government statistics agency said Tuesday. That compares with November's 0.1% monthly gain and represents a quickening after annual inflation held steady at 3.1% that month.

A bounce back in annual inflation was expected. Inflation also picked up in the U.S. and the eurozone bloc last month, though that hasn't derailed expectations central banks will this year position to cut interest rates.

Core prices, which strip out volatile food and energy items, also rose 3.4% in December from a year earlier, a slight moderation from the prior month's 3.5% annual increase, Statistics Canada said.

More worrying for the bank of Canada, however, was an acceleration in two measures of annual core inflation it closely monitors. Weighted median and trimmed mean CPI rose an average 3.65% in December from a year earlier compared with 3.55% growth in November. For a bank watching the indicators for signs inflation is on a sustainable path toward 2% before it opens the door to rate cuts, the advance suggests it is likely to again leave interest rates on hold with next week's policy meeting, economists suggest.

"The December inflation data make clear that we're not out of the woods yet," said Randall Bartlett, senior director of Canadian economics at Desjardins, who doesn't expect rates to be cut before mid-2024.

December's headline inflation was mainly driven by the base-year effect of gasoline prices. Prices at the pump fell on a monthly basis for a fourth month in a row, but were up compared with the sharp drop seen in December 2022. Stripping out gas, headline inflation slowed to 3.5% for the month from 3.6% in November, still well ahead of the central bank's goal.

Canadians also continued to pay more for rent last month, with prices remaining elevated in most provinces amid the higher interest rate environment. Prices for air fares also jumped from the month before, and on an annual basis fell by less than at the end of 2022, and consumers faced increased prices for passenger vehicles, partly with the availability of new 2024 models.

Economists widely expect inflation to continue to recede as growth in Canada remains stalled over the coming quarters. The Bank of Canada expects 2024 to be a year of transition for the economy as the effects of past interest rate increases that took its policy rate to a 22-year high of 5% continue to take hold, restraining spending and subduing an economy that contracted on an annualized basis in the third quarter of last year.

The central bank, which is due to update its economic projections when it decides on rates next week, most recently forecast inflation would remain around 3.5% until the middle of the year and only return to target in 2025.

It is expected to remain wary of pivoting to a more dovish tone too early, given there remain areas of the economy that will be a concern in its fight to tame inflation, including a rebound in existing-home sales last month and a pick-up in average wage growth in December.

A survey of consumer expectations released by the Bank of Canada this week found households have adjusted their behavior in response to high inflation. But expectations for inflation remain persistently high for services such as rent, which may be slowing the return of overall inflation expectations to where they were before the Covid-19 pandemic.

"Given that wage trends are also stuck in the 4%-to-5% range, and now even housing may be showing a pulse, suggests that the Bank of Canada will doggedly maintain a cautious stance at next week's rate decision," said Douglas Porter, chief economist at Bank of Montreal. Porter continues to expect the first rate cut by the central bank in June, slightly later than the market pricing that suggests it may come sooner.

For the year, the CPI rose 3.9% on an annual average basis, sharply cooler than the 40-year high increase of 6.8% in 2022, Statistics Canada said.

That was still ahead of the 3.4% average advance in 2021 and, aside from inflation in 2022, was the largest annual increase since 1991. And despite a decelerating trend since last January, year-over-year price growth for all items remained between 3% and 4% for the last six months of 2023.

The data agency said prices rose in every major component it tracks on an annual basis, though transportation slowed the most with lower gasoline prices, and deceleration was also noted in food and shelter.

CIBC economist Katherine Judge doesn't expect headline inflation to fall into the Bank of Canada's 1%-to-3% target range for a few months, but does expect to see further progress on core measures, particularly excluding shelter costs that are impacted directly by past interest-rate increases. The decline in the core indicators should be on a decelerating track with sluggish economic growth and a deterioration in the labor market, she said.


Write to Robb M. Stewart at robb.stewart@wsj.com


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01-16-24 1108ET