Canada’s consumer price index saw its highest growth in almost 20 years, at an annual rate of 4.4%, according to Statistics Canada. Analyst predictions were 4.3%.
In fact, just about every data point was higher. The number was mainly driven by higher energy costs, as gas prices were 32.8% higher last month for gasoline than in September 2020. Without the volatile gasoline number, inflation would have been 3.5%.
While year-over-year rates of increase continue to be influenced by base effect, the persistence of global supply chain disruptions and elevated business input costs could result in higher long-term expectations.
With the central bank meeting next week, what impact will this have on policy? Both the government and Bank of Canada continue to state that they believe that inflation is transitory. And while Bank of Canada Governor Tiff Macklem has left the door open for further easing of the central bank’s bond-buying program, he remains confident that economic growth will be "strong" over the second half of 2021.
Supply-chain bottlenecks and increasing consumer demand are not unique to Canada, with most developed countries experiencing similar inflationary pressures. For Canada, September’s reading marked the sixth consecutive month that headline inflation has clocked in above the Bank of Canada’s target range of between 1% and 3%.
Current predictions are for the BOC to further taper its bond purchases, but the central bank is unlikely to move the benchmark interest rate until the second half of next year.
