The country’s annual inflation rate rose to 1% in November, driven by a rise in prices for homes, rent and goods around the house.
Statistics Canada said Wednesday the increase compared with a year-over-year increase of 0.7% in October and 0.5% in September.
Economists had expected a year-over-year increase for November of 0.8%, according to financial data firm Refinitiv.
Shelter prices rose 1.9%, contributing the most to the overall increase. Rent prices rose 1.5% in November compared to one year earlier, an increase from the 1% recorded in October.
Prices for furniture were up 2.8%, and appliances by 2.9%, remaining above pre-pandemic levels.
Statistics Canada said the focus on spending around houses is likely due to the pandemic itself: physical distancing rules and workers asked to stay home “may have prompted increased spending on big-ticket items.”
Also driving the increase is a collision of pent-up demand, a glut of savings, historically low interest rates and homebuyers interested in more single-family homes than condominiums.
Throw into the mix higher building material costs and low inventories, and Statistics Canada said there is a perfect mixture for rising prices for new housing.
Mortgage rates have been driven down by the Bank of Canada’s key policy rate — currently at 0.25% — which is as low as the central bank says it can go.
The Bank of Canada has said the rate will stay there until inflation is back at 2%, which the central bank said last week it doesn’t expect to happen until some time in 2023.
“I have no doubt that that is a factor supporting the housing market,” Bank of Canada governor Tiff Macklem said Tuesday when asked by a reporter about the housing market.
“Frankly, that’s part of the way monetary policy works. That’s part of the way it puts stimulus in the system by encouraging spending particularly on things that are often bought with credit.”
In November, the average of Canada’s three measures for core inflation, which are considered better gauges of underlying price pressures and closely tracked by the Bank of Canada, was about 1.7%.
Gasoline prices in November fell 11.9% year over year as the pandemic continued to weigh on demand.
Statistics Canada says the consumer price index excluding gasoline in November was up 1.3% compared with a year ago.
Rising gasoline prices expected next year will likely push headline inflation above the central bank’s 2% target next year, but the overshoot could be temporary, says CIBC senior economist Royce Mendes.
He wrote in a note that the Bank of Canada will likely look through it and leave the policy rate on hold until slack in the economy is absorbed.