(Bloomberg) -- Canadian inflation came in stronger than expected in January as signs point to price pressures continuing to slowly build.
Core consumer prices -- which exclude more volatile items like energy and are considered a gauge of inflation pressures -- inched higher for a fourth month and are now hovering at the highest since September 2016. The overall inflation number actually slowed due to favorable year ago base effects, but still came in stronger than expected.
While monthly data can be volatile, the trend in recent months has been upward, with the price strength reflecting an economy that emerged from a stellar performance in 2017 and continues to grow above its potential. That is adding pressure on the Bank of Canada -- which has kept the expansion going with low interest rates -- to keep hiking borrowing costs to more normal levels.
“You wouldn’t know it from the headline number, but Canadian inflationary pressures are heating up,” said Royce Mendes, an economist at CIBC World Markets.
Investors are anticipating at least two more increases this year, after the Bank of Canada hiked borrowing costs three times since July. Canada’s dollar strengthened 0.3 percent to C$1.2664 per U.S. dollar at 8:43 a.m. in Toronto.
Overall inflation slowed to 1.7 percent in January from 1.9 percent in December, due to favorable base effects following a surge in prices a year ago and is expected to be temporary. Economists expected a bigger slowdown, with forecasts of overall inflation at 1.5 percent.
Higher minimum wages in Ontario, up more than 20 percent on Jan. 1, seem to be adding fodder to the upward price trend, Statistics Canada reported. Ontario’s inflation rate accelerated in January to 1.8 percent, even as it slowed nationally.
The Bank of Canada expects inflation will stay at about 2 percent on average over the next two years -- in line with an economy around full capacity.
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(A previous version of this story was corrected to show core inflation up for fourth straight month.)
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