Statistics Canada’s new tally of prices in November shows that inflation is finally slowing after an alarming post-pandemic surge to levels that many thought would never again be reached.

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But is it slowing fast enough to persuade Bank of Canada governor Tiff Macklem that he can stop raising interest rates? Hard to say.

On Bay Street, the answer appeared to depend on whether your year-end forecast had the Bank of Canada pushing the benchmark rate to 4.5 per cent in January, or whether it called for a pause on Jan. 25, when Macklem and his deputies conclude their next round of policy deliberations.

Statistics Canada on Dec. 21 said the consumer price index increased 6.8 per cent from November 2021, down from year-over-year increases of 6.9 per cent in September and October, as the cost of gasoline and furniture fell.

The Bank of Canada will surely take it, given inflation had surged to 8.1 per cent in June. But 6.8 per cent is still a long way from the central bank’s target of two per cent, which Macklem insists he will hit no matter what. If policymakers are inclined to err on the side of crushing inflation into the dust, they might dislike signs of stickiness in the November numbers.

One of the Bank of Canada’s favourite measures of core inflation increased to five per cent from 4.9 per cent in October, while another plateaued at 5.3 per cent, up from 5.2 per cent at the end of summer.

Core measures offer a clearer sense of the trend because they remove notoriously volatile prices from the mix. Statistics Canada’s measure of core inflation, which simply removes food and energy costs from the all-items index, increased 5.4 per cent from November 2021, compared with 5.3 per cent in October.

That figure suggests the spike in commodity prices that followed Russia’s invasion of Ukraine, and the supply-chain snarls that depleted stockpiles of manufactured goods, are still rippling through the economy, as demand apparently continues to outstrip supply.

“While the inflation picture in November is not too dissimilar from recent months, it is notable that there still is not clear progress in inflation data, particularly the core measures, that underlying inflation is convincingly headed back to two per cent,” Veronica Clark, an economist at Citigroup Capital Markets, said in a note. “We expect the Governing Council to err on the side of raising rates further.”

That’s what Clark has been expecting for weeks. A significant group of Bay Street and Wall Street analysts and investors predict the Bank of Canada will lift the benchmark interest rate another quarter point in January, but Clark is one of the few who think Macklem will have to raise interest rates at least one more time after that to get inflation under control.

It’s possible. Grocery prices, rent and mortgage costs continued to put significant upward pressure on the broader cost of living in November. At the same time, the price of cellular service rose two per cent from November 2021, the first time in three years that mobile costs contributed to inflation, as the country’s three big carriers opted against re-upping previous discounts, Statistics Canada said.

“Turning the temperature down on inflation is proving to be an achingly slow process,” Douglas Porter, chief economist at the Bank of Montreal, said in a note to clients. “We are leaning to the view that the Bank of Canada hikes rates one more time in January to 4.5 per cent, and this firm report does nothing to doubt that call.”

One reason to doubt the Bank of Canada will raise interest rates early in the new year is that Macklem and his advisers reckoned this phase of their inflation fight could be tough going.

Policymakers surprised some on Bay Street earlier this month by lifting the benchmark rate a half point, another aggressive move that increased the odds that monetary policy will end up tipping the economy into recession. But the central bank also made clear that it was ready to stop, explicitly stating that its next decision will be based on a close reading of the latest data.

It was an important shift. For most of 2022, the central bank said the only debate it would be having at each of its policy meetings would be how high to increase borrowing costs, never whether an increase was needed. In January, for the first time in a year, the possibility of a pause will be on the table.

A more obvious drop in inflation in November would have brought clarity about what to do, but the numbers align with the Bank of Canada’s October outlook, which predicted inflation would average 7.1 per cent over the fourth quarter. By that measure, conditions are shaping up to be better than the central bank anticipated.

“The headline has come down a bit, and that is some relief,” Macklem said in an interview on Dec. 19, two days before Statistics Canada updated the consumer price index. The governor said various inflation measures likely will remain “uncomfortably high” for a few months, “but when we get to the spring, and the snow melts, we expect to see the cumulative effect of our interest rates will really start to work and we should really start to see core (inflation) moving lower. If we start to see that, that will certainly be comforting.”

Gasoline prices continue to dictate the headline reading, as they have for much of the year. That matters because fuel is a highly visible cost that often dictates individual perceptions of inflation. Lower prices at the pump could relax some of the anxiety over inflation. Gasoline dropped 3.7 per cent last month after jumping 9.2 per cent in October from September. The monthly decrease slowed the year-over-year rate of gain to 13.7 per cent from 17.8 per cent in October, Statistics Canada said.

Unfortunately, the latest batch of inflation data also supports Macklem’s sense that core price pressures will remain “uncomfortably high,” making it difficult to conclude that no more interest-rate increases will be needed to get inflation under control.

Following the Bank of Canada’s latest half-point increase earlier this month, deputy governor Sharon Kozicki said to make “meaningful” progress towards the target, three-month rates of inflation will “need to come down further and be sustained.”

There wasn’t a lot of evidence of that in November. The three-month annualized rate of change in the consumer price index, minus food and energy, was 4.3 per cent, up from four per cent in October, according to Porter. At the same time, except for food and energy, the three-month rate of most components of the index is lower than the headline rate, suggesting overall inflation will continue to moderate, said Charles St-Arnaud, chief economist at Alberta Central.

However, that moderation might be happening too slowly, given inflation is at such a high level. Price pressures could stick, which might stoke expectations that the cost of living will keep getting more expensive. That would only reinforce inflation by prompting suppliers to charge more for goods and services and workers to demand higher wages.

“Inflationary pressures remain broad and sticky,” St-Arnaud said in a note to clients. “With this in mind, the (consumer price index) report is likely to be a small disappointment for the Bank of Canada, which was likely hoping for a weakening in underlying inflationary pressures.”

St-Arnaud, a former Bank of Canada economist, thinks the central bank will opt to increase interest rates by a quarter point in January and then stop. That’s to be determined, probably by Statistics Canada’s report on December inflation, which will be published a month from now.

• Email: kcarmichael@postmedia.com | Twitter: CarmichaelKevin