Canada’s inflation rate rose to its highest level in three decades during December, putting pressure on the Bank of Canada to start raising interest rates.
Annual inflation was 4.8% last month, according to Statistics Canada, up from 4.7% in November. The December number was in line with economists’ expectations. Core inflation, excluding volatile food and energy prices, rose to 2.93%, also the highest level since 1991.
The report reinforces expectations that Canada’s central bank will start a rate-hike cycle as soon as next week. Markets are pricing in as many as six interest rate increases over the next 12 months.
The Bank of Canada, in its fourth-quarter survey of business executives, described the economy as running increasingly hot, with widespread labor shortages, record inflation and strong demand. Over two-thirds of respondents said they expected annual consumer price gains to surpass 3% over the next two years.
The survey prompted economists to accelerate their forecasts for the central bank to begin increasing the policy rate. It has held its benchmark interest rate at 0.25% since March 2020, soon after the COVID-19 pandemic reached North America.
Inflation has now exceeded the central bank’s 1% to 3% control range for nine straight months as global supply chain bottlenecks push prices higher. Since Canada introduced inflation targeting in the early 1990s, the inflation rate has averaged about 1.8%.
