Call it the Taylor Swift effect.

CIBC highlights an unusual jump in concert and hotel prices in Canada in the November CPI report, assuredly due to the pop star’s tour through Canada in the month. Though they do wonder if the data could be lagged as the price bumps in Canada were less than seen elsewhere and she continued with shows in Vancouver in December.

Overall CPI was at 1.9% y/y compared to 2.0% expected but CIBC noted outright deflation in clothing (-3.8% y/y) and furniture (-2.2%). They note that clothing price drops are “particularly uncommon” and could point to a weak Canadian consumer (we get Canadian retail sales on Thursday).

“Deeper than normal discounting in areas such as furniture and clothing point towards continued
weakness in domestic demand that suggests the need for further interest rate cuts in the New Year,” CIBC writes.

The Bank of Canada’s job won’t get any easier in the coming months. This week, a two-month VAT holiday on many items began and that will push CPI much lower before a big rebound when it expires February.

“It will be difficult for policymakers to determine the underlying trend in inflation over the
next few months, with December figures weakened by the mid-month start of a GST holiday on certain
goods/services. The reinstating of GST in mid-February will then temporarily boost CPI readings. While the CPI-Trim
and Median measures should be less impacted by such temporary factors, throughout this period the Bank’s
assessment of slack in the economy, including how it views upcoming employment data, should become even more
important in determining policy decisions. We continue to forecast a 25bp cut from the Bank at the January meeting.”

The market is pricing a 57% chance of a 25 bps cut on January 29.