Canada's Persistent Underlying Inflation Will Keep The Central Bank on The Sidelines, Says Scotiabank

01:32 PM EST, 12/15/2025 (MT Newswires) -- Canadian core inflation gauges for November came in softly, even as the headline consumer price index roughly matched expectations, said Scotiabank.

Canada's November CPI was 0.1% month over month and 2.2% year over year based on data released on Monday.

The trend in core gauges nevertheless remains above 2% in month-over-month annualized terms, signaling persistent underlying inflationary pressures that will keep the Bank of Canada sidelined, noted Scotiabank.

Markets reacted by driving a mild rally in Canada 2s that saw the yield drop by about 3bps post-release, while USD/CAD rose very marginally, stated the bank.

There are several reasons not to pay much, if any, heed to the figures, according to Scotiabank.

For one, the BoC focuses on trends. With the effects of revisions, the three-month moving averages for traditional core CPI (2.1%), weighted median CPI (2.2% month-over-month seasonally adjusted annual rate, (SAAR), and trimmed mean CPI (2.4%) are all on, or slightly above, the 2% medium-term headline CPI target. This is basically just one single month of soft-core gauges, pointed out the bank.

For another, there is always notable revision risk, primarily as Statistics Canada adjusts seasonally adjusted (SA) factors. For instance, this time StatsCan revised down traditional core CPI by 0.8 percentage point month-over-month SAAR in October and revised up weighted median CPI by 0.6% month-over-month SAAR.

They are "volatile" gauges, it added.

Also, there isn't much to be made of the reading because this is one of two inflation reports before the next Bank of Canada policy decision on Jan. 28.

Further, monetary policy carries long and variable lags of, say, 12-24 months, such that many of the prior rate cuts haven't worked through the system yet. You don't keep easing without giving the lags a chance to work their magic.

There were also large positive gross domestic product revisions that cut down slack estimates and the job market has been ripping with 187,000 jobs created in the past three months. Fiscal policy across the federal and provincial governments is also at a nascent stage of working through.

The outcome of trade negotiations between Canada and the United States is anyone's best guess. Scotiabank is maintaining cautious optimism that Canada will wind up at a "decent" spot pre-midterms but along a bumpy path.

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