Canadian inflation soared in October to its quickest pace in almost 19 years, part of a global upswing in prices that is piling pressure on central banks as households pay sharply more for gasoline, new vehicles and various food items.
The consumer price index (CPI) rose 4.7 per cent in October from a year earlier, Statistics Canada said Wednesday, up from 4.4 per cent in September. It was the seventh consecutive month that inflation has exceeded the Bank of Canada’s target range of 1 per cent to 3 per cent and it marked the highest annual rate since February, 2003.
Prices rose in all eight major components of the CPI, led by a 10.1-per-cent annual increase in transportation costs that was driven by a 42-per-cent bump at the pumps. Excluding energy, inflation rose 3.3 per cent.
The three “core” measures of inflation favoured by the Bank of Canada rose an average of 2.7 per cent in October, unchanged from the previous month. These measures are designed to exclude some of the more volatile parts of the CPI – such as the 60-per-cent increase in rental costs for passenger vehicles, tied to weaker auto production – and give the bank a better sense of underlying trends.
The upturn in inflation – and its root causes – is perhaps the biggest topic of debate in economics today, and the Canadian numbers are part of a widespread boost in prices. On Wednesday, Britain reported inflation of 4.2 per cent, which exceeded analysts’ expectations, while U.S. inflation is at 6.2 per cent, the highest rate since 1990.
Major central banks, including the Bank of Canada, have recently said higher inflation is proving more durable than they assumed several months ago, partly because of persistent supply chain disruptions.
In Canada, those issues were exacerbated this week by extreme flooding in British Columbia that has washed out and damaged several key links in trade routes, forcing the Port of Vancouver – the largest in Canada – to halt incoming and outgoing rail traffic Tuesday.
The inflation numbers could ratchet up pressure on the Bank of Canada to start raising its policy interest rate, which has remained at 0.25 per cent since early in the pandemic. The central bank has promised not to raise rates until the economy is operating at full potential and the labour market has returned to normal – something it now expects to happen in the middle quarters of next year, setting up the possibility of a rate hike in April.
“We are not there yet, but we are getting closer,” Bank of Canada Governor Tiff Macklem wrote in an opinion piece published in the Financial Times on Monday.
“We continue to believe slack remains in the economy and therefore considerable monetary stimulus is still required. But supply disruptions appear to be lasting longer than we thought, and energy price increases are adding to current inflation rates,” he wrote.
Indeed, energy prices were 26 per cent higher in October than a year earlier, Wednesday’s numbers show. While gasoline was a major contributor, natural gas prices also rose 19 per cent.
A global shortage of semi-conductor chips is weighing on vehicle production – and, subsequently, supply. With little inventory at car dealerships, prices for passenger vehicles rose 6.1 per cent.
Shoppers are also feeling the pinch. The price of meat products rose 10 per cent, with particularly steep increases for fresh or frozen beef (14 per cent) and bacon (20 per cent).
“Labour shortages that have slowed down production, ongoing supply chain challenges and rising prices for livestock feed continued to factor into higher prices for meat,” Statscan said.
Housing costs rose 4.8 per cent over the past year, with larger increases for home ownership (5.1 per cent) than rentals (1.9 per cent). However, Statscan noted that rent increases have been lofty in the Maritimes, led by New Brunswick (9.4 per cent), then Prince Edward Island (7.6 per cent) and Nova Scotia (7.1 per cent). The agency said higher migration to the region may be contributing to steeper costs.
The real estate market is heating up again, with national resales jumping 8.6 per cent in October from September. The average sale price in Canada was about $717,000 last month, up 18.2 per cent from a year earlier.
The Bank of Canada expects inflation to average 4.8 per cent in the fourth quarter of this year and 3.4 per cent next year. Its latest projections, updated in late October, show inflation returning close to the bank’s 2-per-cent target by late 2022.
Bond markets are pricing in about four Bank of Canada rate hikes next year, which would put the bank well ahead of the U.S. Federal Reserve in raising interest rates.
The numbers prompted a quick response from Conservative politicians, who have made inflation one of their key issues for the upcoming Parliament, which starts sitting next week.
“This skyrocketing inflation and cost of living crisis is impacting families from across Canada. Food is getting more expensive. Gas and home heating are costing more. And housing prices continue to reach new records,” Conservative Leader Erin O’Toole said in a statement Wednesday.
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