Canadian inflation rate roared back to life last month, as broad gains in gasoline, electricity and postal services pushed consumer price increases to the fastest clip in two years.
Consumer prices rose 2.4 per cent from a year earlier, Statistics Canada said Tuesday, topping all economists’ forecasts. Less volatile core prices, which the Bank of Canada uses to discern future inflation trends, quickened to 1.8 per cent in October from 1.5 per cent in September.
The surprise increase stems partly from one-off factors – higher sales and property taxes in some provinces, and car insurance hikes in Ontario. But economists will be keeping a close eye in the coming months to gauge whether the economic recovery will gather enough steam to create demand that leads to sustained price increases.
“We’re watching subsequent months – you get this kind of month in the annual rate in November and December and it could be telling you demand is picking up,” said Paul Ferley, Royal Bank of Canada assistant chief economist. However, he said, “I’m still of the view that slack in the system will keep inflation fairly moderate.”
Some inflationary pressures loom on the horizon. Major supermarkets will feel the heat by next year to pass on wholesale food price increases as companies are squeezed by dramatic jumps in the price of wheat, sugar and other commodities.
Already food suppliers say they will discuss wholesale price increases with retailers. “The price of wheat is going up through the roof, and there will be big additions in terms of price increases over the next 12 months,” W. Galen Weston, chairman of Toronto-based giant George Weston Ltd., said on Tuesday.
Retailers will grapple with passing on supplier price increases to consumers. Major suppliers “anticipate that they could come to the market with price increases after the new year,” Eric La Fleche, chief executive officer of Montreal-based grocer Metro Inc., said last week.
By next year “hopefully we will be able – and the market will be able – to pass them on to the consumer,” Mr. La Fleche said.
The Bank of Canada – which sets interest rates to keep inflation close to 2 per cent, and has its next decision on Dec. 7 – probably won’t be swayed by the October consumer price index report, analysts said. First, they noted, up until the latest reading, inflation in recent months has been tame or has surprised central bank Governor Mark Carney and his rate-setting panel by coming in slower than anticipated. Perhaps more significant, Mr. Carney has repeatedly stressed that the sputtering rebound in the United States and uncertainties throughout the global economy mean a return to rate hikes would need to be “carefully’’ considered.
Slow growth will likely keep overall inflation under wraps, said RBC’s Mr. Ferley, who doesn’t see the Bank of Canada raising interest rates before the second quarter of next year.
Much of the increase last month stems from the lingering effect of the harmonized sales tax, he noted. The Bank of Canada calculates the sales tax hikes in Ontario, B.C. and Nova Scotia will cause a temporary rise of 0.7 percentage points in the annual inflation rates from July, 2010, to June of 2011.
