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Canada’s annual inflation rate hit a six-year high in June and retail sales bounced back after a cold April, bolstering expectations for another interest-rate hike in the coming months.

The Consumer Price Index – a broad measure of the cost of living for most Canadians – jumped to 2.5 per cent last month, above the Bank of Canada’s target of 2 per cent for the fifth consecutive month, Statistics Canada reported on Friday. Largely triggered by higher gasoline prices and energy costs, the increase follows a 2.2-per-cent rise in May. June’s increase is the highest since a 2.6-per-cent gain in February, 2012.

The solid economic indicators come after Bank of Canada Governor Stephen Poloz raised the bank’s benchmark interest rate to 1.5 per cent last week – the fourth hike in 12 months – and signalled that more increases could be in the works this fall, despite uncertainty surrounding trade agreements with the United States and the threat of tariffs on a growing number of goods. The bank’s next rate decision is in September, but Bank of Montreal chief economist Douglas Porter said the next move is more likely to come in October.

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“I think Governer Poloz has been quite clear that the bank is not driven by one, two or even three economic indicators, and they’re certainly not going to dance to the tune of a few monthly moves,” Mr. Porter said. “Over all, the bigger story is that inflation is now at or above their target, and that’s enough to keep the bank in tightening mode.”

Canadian Imperial Bank of Commerce chief economist Avery Shenfeld echoed that thought, saying an elevated inflation rate would keep pressure on the central bank.

“The era in which inflation was too low for the Bank of Canada’s tastes is clearly behind us,” he said, cautioning that there’s “less than meets the eye” in Friday’s report.

“If we were using the U.S core measure, and stripped out food and energy, we would be looking at an only 1.8-per-cent rate,” Mr. Shenfeld said.

Royal Bank of Canada deputy chief economist Dawn Desjardins said “there’s lots of moving parts at the moment with respect to the trade file,” adding that the central bank may want to get a sense of how the U.S will move forward on tariffs before making a decision on interest rates.

“But all of these economic reports are really confirming that even though we do have an uncertain backdrop, our economy is performing really well.”

Like Mr. Porter, she sees the next rate hike coming in October.

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Seven of the eight components that Statscan uses to record inflation changes were up in June over the previous year. A 6.6-per-cent increase in transportation costs, 12.4-per-cent jump in energy costs and 1.8-per-cent rise in passenger vehicle costs were all factors in the higher rate.

A 24.6-per-cent gain in gasoline prices was by far the biggest driver. And higher labour costs as a result of minimum-wage increases in some provinces were a catalyst for higher prices for restaurant foods.

Separately, Statscan said on Friday that retail sales jumped in May after bad weather in April led to a disappointing report.

Strong motor vehicle and gas station sales in May drove overall retail sales up 2.8 per cent to $50.8-billion after a 0.9-per-cent decrease in April.

The two reports helped push the loonie up more than 1 per cent against the greenback to more than 76 U.S. cents.

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