Inflation climbs to highest in more than 30 years, raising odds of rate hike next week

Kevin Carmichael: Inflation rises to 4.8 per cent in December, pushed higher by increases in the cost of almost everything

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Canada’s broadest measure of inflation climbed 4.8 per cent in December from a year earlier, the largest increase in more than thirty years, raising the odds that the Bank of Canada will raise interest rates next week to offset gathering cost pressures.

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Statistics Canada’s consumer price index (CPI), which the central bank uses as guide for where to set its benchmark lending rate, was pushed higher by increases in the cost of almost everything, as all of the eight major components that the agency uses to group the many items it includes in its price basket posted gains last month.

Notably, food prices surged in December as poor weather in major farming regions around the world limited the supply of fresh fruit, while the drought that afflicted the Prairies over the summer showed up in the price of bakery goods, which jumped 4.7 per cent from a year earlier, Statistics Canada reported on Jan. 19.

The CPI actually decreased 0.1 per cent from its level in November, as gasoline prices eased amid the latest wave of COVID-19 infections. It’s unlikely many people noticed, however, as fuel costs still were 33 per cent higher than December 2020. Surging commodity prices are a big part of the post-pandemic inflation. Excluding energy, the CPI rose 3.8 per cent from a year earlier, still high, but less extreme than the all-items number.

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Three per cent is an important psychological barrier because it’s the outer limit of the Bank of Canada’s comfort zone for inflation. It actually tries to keep the CPI advancing at an annual pace of about two per cent, the midpoint of range that begins at one per cent on the low end and extends to three per cent at the high end.

Inflation has now exceeded three per cent since April, by far the longest stretch of off-target price increases since the central bank began using the CPI to guide its policies in 1991.

Financial Post

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