Canada’s annual inflation rate accelerated to an 18-year-high in September, driven by rising transportation, shelter and food prices, data showed on Wednesday, putting the focus on the Bank of Canada ahead of a rate decision next week.
Inflation increased to 4.4% in September, beating the average analyst estimate of 4.3%, to reach its fastest clip since February 2003, Statistics Canada data showed.
“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,” said Derek Holt, vice president of capital markets economics at Scotiabank.
The central bank, which slashed rates to a record low 0.25% last year during the pandemic, expects headline inflation to remain above its 1%-3% control range this year.
Governor Tiff Macklem last week said supply chain bottlenecks meant that inflation would probably take a bit longer than previously expected to come down.
CPI common, which the Bank of Canada calls the best gauge of the economy’s underperformance, was flat at 1.8%, while the other two measures of core inflation posted gains.
The Canadian dollar pared gains after the data, touching 1.2349 to the greenback, or 80.98 U.S. cents.
The last time that annual inflation reached 4.4% was in February 2003, when the Bank of Canada’s key rate was 2.75%. In March of that year the bank raised the rate to 3.0%.
Analysts expect the central bank to hold rates at its Oct. 27 meeting, while also tapering its quantitative easing program to stop adding new stimulus.
“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,” said Andrew Kelvin, chief Canada strategist at TD Securities.
Countries around the world are grappling with hot inflation amid supply chain hurdles and labor shortages as restrictions are eased and tightened with each new wave of the coronavirus, leading to choppy demand and supply bottlenecks.
Bundesbank President Jens Weidmann said on Wednesday he would step down more than five years early, issuing a last warning about the risks posed by inflation.