TORONTO (Reuters) – Canada’s annual inflation rate accelerated to 4.4% in September, the highest since February 2003, and up from a year-over-year increase of 4.1% in August, Statistics Canada said on Wednesday.
Analysts polled by Reuters had expected the annual rate to rise to 4.3% in September.
Market reaction: CAD/
JIMMY JEAN, CHIEF ECONOMIST, DESJARDINS GROUP
“It’s very likely to be close to the peak on CPI, given the pattern of base year effects that we’re looking at. We think we’re going to start to see moderation. It’s gonna be slow, but we think we’re gonna see a little bit of relief. At the same time the continued strong prints on inflation are seeping into expectations and we saw that pretty clearly in the Bank of Canada’s business outlook survey this week – both businesses and consumers. So, this is something that still has… the Bank of Canada on alert. It’s not like it’s going to hike in a hurry, but they’re watching that very closely to make sure that it doesn’t get out of control.”
“There’s the potential for them (the central bank) to adjust or tweak their forecasts higher on inflation and maybe signal something like we’d be looking at maybe more mid-2022 for the first hike, as opposed to sometime in the second half of the year. There are some ingredients. The labor market has also proved the COVID situation is better handled, so maybe (there is) less of a downside risk from that. I think (the Bank of Canada) might take that step. Do they do that now, or do they want to give themselves another couple months and maybe change their guidance in January? It’s so up in the air. So I’d say it’s a close call, but it’s a live possibility.”
DEREK HOLT, VICE PRESIDENT OF CAPITAL MARKETS ECONOMICS, SCOTIABANK
“It suggests there is still momentum at the margin in terms of inflationary pressures that can’t be just dismissed on base effects and other factors. So it’s still a sustained overshoot, in terms of the freshest evidence.”
“The average core reading, pushing up again to 2.7(%) on the month, getting uncomfortably into the upper end of the Bank of Canada’s target range, overall reinforces expectations of a shift to reinvestment at the next meeting and set up rate hikes in the second half of next year.”
ANDREW KELVIN, CHIEF CANADA STRATEGIST, TD SECURITIES
“We do see these inflationary pressures continue to work through the economy. We did see the core measures tick up as well on average, which does speak to growing underlying pressures. But, the Bank of Canada has been pretty adamant that they think this current inflationary surge is transitory. I don’t think this will change their mind.”
“If you look at the governor’s comments recently, they do still believe that there is good reason to believe that this is all related to a complicated reopening process. They have signaled that they expect inflation to be elevated into the middle of next year and they are evidently comfortable with that.”
“It’s a question of at what threshold would they start to become uncomfortable and that’s not an obvious thing to figure out from the fundamentals if you think that the surge is transitory.”
(Reporting by Maiya Keidan, Fergal Smith and Steve Scherer; Editing by Denny Thomas)