Inflation Teeters at Highest Since Bank of Canada Adopted Target

(Bloomberg) -- Canadian consumer price inflation held at the highest level in nearly two decades in November, maintaining pressure on the Bank of Canada to quickly start raising interest rates.

Annual inflation was unchanged at 4.7% last month, Statistics Canada reported Wednesday in Ottawa. Inflation has only reached this level twice over the past three decades -- the last time in 2003 -- and has never gone higher. 

Using two decimal points, the inflation rate is 4.72%, which is the highest since 1991 -- when the Bank of Canada adopted an explicit inflation fighting mandate. 

The average of the central bank’s core measures -- often seen as a better indicator of underlying price pressures -- was 2.73%, also the highest in 30 years.

Inflation has now exceeded the central bank’s 1% to 3% control range for eight straight months as global supply chain bottlenecks push up prices. Wednesday’s report will reinforce expectations policy makers led by Governor Tiff Macklem will start a rate hiking cycle early next year. Markets are pricing in five interest-rate increases next year.

“Monetary policy has never been this stimulative at any point in the inflation targeting era,” Stephen Tapp, chief economist at the Canadian Chamber of Commerce, said by email. “The bank should start to remove some of its emergency support in the first quarter of 2022.”

What Bloomberg Economics Says

“The BoC’s recently renewed framework puts more focus on employment conditions than in the past, but its patience with near-5% inflation is not unlimited. We still expect rate hikes are coming in 2022, starting in April.”

-- Andrew Husby, economist

For the full analysis, click here

One bright side to the report was that inflation didn’t accelerate, as it did last month in the U.S., where annual price increases are running at the highest in nearly 40 years. Falling prices for cellular phone plans and travel tours last month helped keep pressures in check. Pushing inflation higher in November were rising prices for food and housing. 

Bad weather conditions contributed to higher food prices, added to broader price pressures on goods from snarls in global supply chains. The statistics agency said supply bottlenecks were putting upward pressure on prices for items like autos and furniture. Gasoline prices were little changed in November, even though they are still up 44% from a year earlier.

Market reaction was muted, with the loonie down 0.2% to C$1.2883 per U.S. dollar as of 9:23 a.m. in Toronto. The two-year benchmark yield was at 0.935%, a drop of about 1 basis point from just prior to the data release.

©2021 Bloomberg L.P.