Canada's inflation rate moved a notch higher last month as the price of most consumer items increased, especially gasoline and food.
Statistics Canada's consumer price index rose to 3.2 per cent, while the underlying core inflation rate hit 2.2 per cent, the highest level in almost three years.
The higher core inflation rate, which excludes volatile items such as gasoline, will raise some eyebrows at the central bank as it prepares for next week's interest rate announcement.
The Bank of Canada aims to keep core inflation at about 2 per cent and it's the first time since February 2010 that it has been above that mark.
Still, few will be expecting bank governor Mark Carney to use the one-month development as a rationale for taking interest rates higher next week.
"Despite this morning's upside surprise, we don't expect next week's rate announcement by the Bank of Canada to feature any major change from the July one," said Jacques Marcil, senior economist with TD Bank.
"We still expect gross domestic product growth to slow to below 1.5 per cent in the fourth quarter. Given this growth profile and the risk represented by high global uncertainty and lukewarm growth in other developed countries, look for the Bank of Canada to wait until early 2013 before it switches its interest rate to a more aggressive inflation-fighting mode."
But Bank of Montreal's Doug Porter says the "stickiness" of inflation, despite the economy's capacity gap, also makes it unlikely the central bank will lower its key rates.
"While this result doesn't completely rule out rate cuts, it relegates them to only the most extreme circumstance," he said in a note. "Moreover, if core stays close to this level — let alone rises further — the Bank of Canada may return to the tightening wheel sooner than most now expect, especially if financial markets stabilize."
Mr. Porter said it will be increasingly tough for the central bank to justify ultra-low one per cent overnight interest rates with core inflation above two per cent and the headline rate above three per cent.
The central bank's policy is to keep inflation, both core and headline, at or near two per cent over the medium term.
Statistics Canada said the major drivers of inflation in Canada remain gasoline and food. They were up 22.7 per cent and 4.3 per cent respectively from a year ago, about the same levels as in August.
But the agency noted that most things have risen in the past year. In fact, all eight major components the agency tracks were higher last month on an annual basis: food; shelter; household operations and furnishings; clothing and footwear; transportation, which includes gasoline; health and personal care; recreation, education and reading; and alcohol beverages and tobacco products.
On a monthly basis, Canadians paid 10.5 per cent more women's clothing as retailers introduced new winter and fall collections. Tuition fees and supplies, automobile purchases, air fare, household operations financial services also cost more.
But there were also some savings in the monthly readings as fresh vegetables, fruit and cereals, electricity, mortgage insurance and gasoline edged down.
On a regional basis, Nova Scotia and New Brunswick had the country's highest annual inflation rate at 4.2 per cent, while British Columbia's 2.4 per cent was the lowest.