Canada’s inflation rate higher than expected in August

Canada’s annual inflation rate jumped to 4.0 percent in August from 3.3 percent in July due to higher gasoline prices, according to data released Tuesday, a sign that the central bank may being forced to raise interest rates again after 10 increases since March last year. .

Analysts polled by Reuters forecast inflation would reach 3.8 percent. The consumer price index rose 0.4 percent month-over-month in August, Statistics Canada said, compared to an expected gain of 0.3 percent. Two of the three measures of underlying inflation also rose.

Last month’s annual rate, the highest since the 4.4 percent reported in April, is well above the Bank of Canada’s 2 percent target. The main factor was a 0.8 percent year-on-year increase in gasoline prices, which had fallen 12.9 percent in the 12 months to July.

Live updates: Canada’s inflation rate rises to 4.0% in August

“We need to avoid overly vehement views that the bank is done with rate hikes and be more circumspect, following the evidence,” said Derek Holt, vice president of capital markets economics at Scotiabank. “I still think we need to leave the door wide open for further rate hikes, plural.”

Holt highlighted gains in two of the Bank of Canada’s three main measures of underlying inflation: the median CPI rose slightly to 4.1 percent from 3.9 percent in July while the CPI modulated increased to 3.9 percent from 3.6 percent.

Money markets increased their bets on a rate hike in October after the data was released, estimating a 36 percent chance of an increase after the figures were released, up from 23 percent previously.

The Canadian dollar was trading 0.6 percent higher at 1.34 against the greenback, or 74.63 U.S. cents, after hitting its highest level since Aug. 10 at 1.3383.

However, another inflation report and a host of other data are expected to be released before the Canadian central bank’s next meeting to set the key overnight lending rate on October 25.

“We still think the chances of a rate hike are low because we believe they have stopped with the cycle,” said Jimmy Jean, chief economist of Desjardins Group. “The economy is slowing and the unemployment numbers seem to be rising, so these are important things that matter.”

Housing prices rose 6.0 percent in August after rising 5.1 percent in July, driven in part by rising rents and interest rates.

Bank of Canada Governor Tiff Macklem, noting a rise in oil prices, predicted on September 7 that “overall inflation will increase in the near term before slowing.”

The central bank kept its key overnight rate at 5 percent on September 6, noting that the economy had entered a period of weaker growth, but said it could raise borrowing costs again if inflationary pressures persist.