Canada’s inflation picture remained superficially calm in November. Headline CPI held at 2.2 percent year over year, right in line with the Bank of Canada’s target and comfortably below the levels that dominated much of the past two years. But beneath that stability, the composition of inflation continues to shift in ways that matter for households, employers, and the labour market.

The latest data reinforce a theme that has been quietly building through the fall. Inflation is no longer being driven by broad demand pressure or overheating domestic conditions. Instead, it is increasingly shaped by narrow supply constraints, particularly in food, and by the fading impact of past interest rate hikes on shelter and interest-sensitive components.

Food inflation resurfaces, for reasons rates cannot fix

The most striking development in November was the reacceleration in food inflation. Prices rose 4.2 percent year over year, up sharply from 3.4 percent in October and the fastest pace since late 2023. Grocery prices led the move, with fresh or frozen beef up nearly 18 percent and coffee prices soaring almost 28 percent.

These increases were not the product of excess consumer demand. They reflect supply-side disruptions that monetary policy is poorly equipped to address. In Canada, prolonged drought conditions in Western provinces over recent years have reduced the size of the cattle herd, pushing beef prices higher. Globally, dry weather in Brazil and Vietnam has curtailed coffee production, tightening supply just as U.S. tariffs on coffee-producing countries are filtering through North American food manufacturing chains. Statistics Canada has already flagged refined coffee as an example where U.S. trade policy is indirectly lifting Canadian prices, even though Canadian importers are not paying the tariffs themselves.

For the Bank of Canada, this distinction matters. Food inflation is painful for households, especially lower-income ones, but it does not call for tighter monetary policy. Raising interest rates does not produce rain in Brazil or rebuild cattle herds in Alberta. November’s report reinforces that point.

Underlying inflation continues to cool

Outside of food, the inflation picture improved modestly. Excluding food and energy, CPI slowed to 2.4 percent in November from 2.7 percent in October. Part of that drop reflected lower travel services inflation, down 7.7 percent year over year, following unusually strong accommodation prices last November linked to major concert tours. But broader disinflation is also visible in the components that respond most directly to interest rates.

Shelter inflation eased to 2.3 percent from 2.5 percent, with both rent growth and mortgage interest costs slowing. Mortgage interest inflation is now running at just 2.3 percent, a clear reflection of past Bank of Canada rate cuts working their way through household balance sheets.

The central bank’s preferred core measures tell a similar story. CPI trim and CPI median both rose a subdued 0.1 percent month over month on a seasonally adjusted basis. On a year-over-year basis, both edged down to 2.8 percent, while their three-month annualized pace slowed to 2.3 percent from 2.6 percent in October. These are not readings that point to a resurgence in underlying inflation momentum.

One area that remains somewhat firmer is the so-called supercore measure, which strips out goods and shelter from CPI trim. It rose 0.2 percent in November and is still running at 3.2 percent year over year. Combined with a slight widening in the breadth of price pressures, with about 54 percent of CPI components growing faster than 3 percent on a three-month annualized basis, this suggests inflation risks have not disappeared entirely. But they are contained and increasingly localized.

What this means for rates and for jobs

Moderating underlying inflation reinforces that the Bank of Canada does not need to pivot toward outright rate hikes. At the same time, the economy has shown enough resilience, particularly in recent labour market data and business sentiment, that further rate cuts are also unlikely in the near term. November’s inflation report supports a prolonged hold.

For the labour market, this matters in two important ways. First, easing core inflation helps stabilize real wage dynamics. With headline inflation near target and shelter costs cooling, nominal wage gains are less likely to be eroded, supporting household purchasing power without reigniting price pressures. That creates a more sustainable environment for hiring, especially in services sectors that have been sensitive to real income swings.

Second, the nature of current inflation pressures points to uneven impacts across industries. Food manufacturing, agriculture, logistics, and parts of retail are facing cost volatility driven by supply constraints rather than demand weakness. That can translate into selective hiring, overtime pressure, or margin compression rather than broad-based job cuts. In contrast, interest-sensitive sectors like housing-related services are beginning to see some relief as mortgage cost inflation fades, even if activity remains subdued.

A more complicated, but calmer, inflation regime

November’s inflation report does not signal victory, but it does mark a transition. Canada has moved away from the era of generalized inflation and into a phase where price pressures are narrower, more supply-driven, and less responsive to interest rates. For policymakers, patience is the correct response. For employers and staffing firms, the implication is a labour market shaped less by macro overheating and more by sector-specific shocks and adjustments.

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