Canadian inflation is jumping, and bets on an October rate hike are rising

People shop at a grocery store in Toronto, Ontario, Canada on November 22, 2022. REUTERS/Carlos Osorio/File Photo Obtaining licensing rights

OTTAWA (Reuters) – Canada’s annual inflation rate jumped in August to four percent from 3.3 percent in July on higher gasoline prices, data showed on Tuesday, a sign that the central bank may have to raise interest rates again after 10 increases. . Since March of last year.

Analysts polled by Reuters expected inflation to reach 3.8%. Statistics Canada said the consumer price index rose 0.4% month-on-month in August, compared with an expected increase of 0.3%. Two of the three core inflation measures also rose.

The annual rate, the highest since the 4.4% announced in April, is double the Bank of Canada’s target of 2%. The main driver was a 0.8% year-on-year increase in gasoline prices, which fell by 12.9% in the 12 months to July.

“We need to avoid overly aggressive views that the bank is done raising interest rates and be more cautious and follow the evidence,” said Derek Holt, vice president of capital markets economics at Scotiabank. “I still think we need to leave the door very open for further rate hikes, plural.”

Holt highlighted gains in two of the Bank of Canada’s three core measures of core inflation — the average CPI rose to 4.1% from 3.9% in July while the CPI rose to 3.9% from 3.6%.

“The ups and downs in magnitude that we have seen in the last two months are not unusual,” Bank of Canada Deputy Governor Sharon Kozicki said in a speech after the data was published, which is why the central bank has focused on fundamental measures. Economic inflation.

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“Core inflation remains well above the level that would be consistent with achieving our target of 2% CPI inflation,” she said.

Money markets raised their bets for a rate hike in October after the data, seeing a 42% chance of an increase after the rate figures compared to 23% before.

The Canadian dollar was trading up 0.6% at 1.34 per dollar, or 74.63 US cents, after touching its strongest level since August 10 at 1.3383.

However, another inflation report and a host of other data are due before the Bank of Canada next meets on October 25 to set the key overnight interest rate.

“We still think the chance of rate hikes is low because we feel they have stalled with the cycle,” said Jamie Jane, chief economist at Desjardins Group. “The economy is slowing down and the unemployment numbers seem to be trending up, so these are significant and important things.”

Home prices in August rose 6.0% after rising 5.1% in July, driven in part by higher rents and higher interest rates.

Canadian Prime Minister Justin Trudeau’s government on Tuesday introduced legislation aimed at stimulating the construction of rental properties amid the housing crisis.

The country’s five major grocery chains agreed on Monday to help the government in its bid to stabilize high prices after meeting with the industry and finance ministers.

“There is evidence that inflationary pressures in grocery stores are easing,” said Andrew Grantham, chief economist at CIBC Capital Markets, with supermarket food price inflation falling to 6.9% year-on-year in August from 8.5% year-on-year in August. Previous Month. .

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Bank of Canada Governor Tiff Macklem predicted on September 7, referring to the increase in oil prices, that “headline inflation will rise in the near term before declining.”

The central bank kept its key overnight interest rate at 5% on September 6, indicating that the economy had entered a period of weaker growth, but said it may raise borrowing costs again if inflationary pressures persist.

(Reporting by David Ljungren and Steve Shearer – Reporting by Mohammed for the Arabic Bulletin) (Additional reporting by Dale Smith, Fergal Smith and Divya Rajagopal – Reporting by Mohammed for the Arabic Bulletin) Editing by Paul Simao and Mark Porter

Our standards: Thomson Reuters Trust Principles.

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He covers Canadian political, economic and general news as well as breaking news across North America, and was previously based in London and Moscow and won the Reuters Treasury of the Year award.

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