The secular shift from deflation to reflation will go on for years: Strategist
Canadian consumer price inflation accelerated to the fastest level in three decades in December, adding pressure on the Bank of Canada to quickly start raising interest rates.
Annual inflation was 4.8 per cent last month, Statistics Canada reported Wednesday in Ottawa, from 4.7 per cent in November. The December number was in line with economists’ expectations.
The average of the central bank’s core measures -- often seen as a better indicator of underlying price pressures -- rose to 2.93 per cent, also the highest since 1991.
The report will reinforce expectations that policymakers led by Governor Tiff Macklem will start a rate-hike cycle as soon as next week. Markets are pricing in as many as six increases in borrowing costs over the next 12 months.
The Bank of Canada, in its fourth-quarter survey of business executives released on Monday, described the economy as running increasingly hot, with widespread labor shortages, record inflation expectations and strong demand. Over two-thirds of respondents said they expected annual consumer price gains to surpass 3 per cent over the next two years. About 80 per cent of businesses believe they will need to accelerate wage gains to retain and attract workers.
The survey prompted economists to accelerate their forecasts for the central bank to begin increasing the policy rate. It has held its benchmark at the emergency level of 0.25 per cent since March 2020, soon after the COVID-19 pandemic hit North America.
Inflation has now exceeded the central bank’s 1 per cent to 3 per cent control range for nine straight months as global supply chain bottlenecks push up prices. Since Canada introduced inflation targeting in the early 1990s, the inflation rate has averaged about 1.8 per cent.
Bonds ticked lower, pushing the two-year yield up to 1.284 per cent as of 8:39 a.m. in Toronto. The loonie briefly rose, then pared gains to trade at $1.2467 per U.S. dollar.
On a monthly basis, prices fell 0.1 per cent as gasoline prices dropped in December.