Canada's Annual Inflation Rate Matches 18-Year High, Set to Keep Rising

Canada's annual inflation rate accelerated again in October, matching a February 2003 high, led by sharp rises in gasoline and housing prices, data showed on Wednesday, with analysts expecting more heat ahead. Inflation rose to 4.7%, in line with expectations, up from 4.4% in September, Statistics Canada data showed. It was the seventh consecutive month in which headline inflation topped the Bank of Canada's 1-3% control range. Prices rose in all eight major component groups for the second month in a row. Analysts said that trend was likely to continue. "There is more heat ahead, particularly with the Vancouver port disruptions. And I think we are going to get inflation crossing well above 5% by the end of the year," said Derek Holt, vice president of capital market economics at Scotiabank. Rail access to Canada's largest port, the Port of Vancouver, has been cut off by deadly flooding and landslides in the West Coast province of British Columbia. CPI common, which the central bank calls the best gauge of the economy's underperformance, was unchanged at 1.8%. Read more.

In related news, the Bank of Canada still expects economic slack to be absorbed in the middle quarters of 2022, but that does not necessarily mean in the second quarter, a deputy governor said on Tuesday, potentially dashing market hopes of an early rate hike, Reuters reported. Lawrence Schembri, in an audience question and answer session after a speech on labor market uncertainty, reiterated that increases to the benchmark rate will only come when excess capacity is absorbed so that the central bank's 2% inflation target is sustainably achieved. "There's a lot of uncertainty about the timing of the closing of the output gap, so one should be careful not assuming it's necessarily going to be the second quarter. It's a range of six months -- that's our best estimate," he said. The Bank of Canada said last month that the output gap could close as soon as April 2022, leading to higher interest rates. Governor Tiff Macklem on Monday said that while economic slack has not yet been absorbed, it is getting closer. Read more.