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Canadian inflation hits fresh 30-year high in January, rate hikes loom

Economic Indicators Feb 16, 2022 10:28AM ET
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2/2 © Reuters. FILE PHOTO: A person enters Copernicus Lodge after new provincial rules limiting visitations at long-term care homes come into effect due to spiking coronavirus disease (COVID-19) case numbers in Toronto, Ontario, Canada December 30, 2021. REUTERS/Carlos Osorio/File Photo 2/2

By Julie Gordon and Ismail Shakil

OTTAWA (Reuters) -Canada's annual inflation rate accelerated again in January to hit a fresh 30-year high at 5.1%, as food and housing costs continued to rise, official data showed on Wednesday, bolstering the case for a steady series of interest rates hikes.

January's figure is the highest since 5.5% recorded in September 1991 and the 10th consecutive month above the Bank of Canada's 1%-to-3% control range, Statistics Canada data showed. Analysts polled by Reuters had expected inflation to remain at 4.8% in January.

"It's hotter than expected," said Derek Holt, vice president of capital markets economics at Scotiabank. "To me this suggests that the economy is moving on from Omicron's effects.

"The restrictions may have added a little bit to the inflationary pressures. But there is certainly no slowdown," he added.

Shelter costs jumped 6.2% in January year-on-year, the fastest pace since February 1990, while food prices rose 5.7% as shopping for groceries became more expensive, both on supply chain issues and unfavorable growing conditions.

With price gains widespread, it appears businesses are passing on cost increases to consumers, analysts said. Rising energy prices, Canada's record-smashing housing market, and wage pressure are set to send inflation still higher.

"Simply put, this is far too hot for comfort for the Bank of Canada, so expect a steady series of rate hikes in the coming meetings," Doug Porter, chief economist at BMO Capital Markets, said in a note.

Porter expects four hikes in a row, to start, but added "it may well require much more than that to bring inflation to heel."

Bank of Canada Governor Tiff Macklem has said interest rates need to rise to tackle hot inflation and Canadians should expect multiple hikes.

Still, analysts doubted the data would be enough to sway the central bank to hike by 50 basis points rather than 25 basis points at its March 2 policy meeting. Money markets see about a 30% chance of the larger increase.

"It's clear that central bankers need to tighten policy, but high household debt levels will temper the Bank of Canada's aggressiveness," Royce Mendes, head of macro strategy at Desjardins Group, said in a note.

The CPI common measure, which the central bank says is the best gauge of the economy's underperformance, rose to 2.3% from 2.1% in December.

The Canadian dollar was trading 0.2% higher at 1.2684 to the greenback, or 78.84 U.S. cents.

Canadian inflation hits fresh 30-year high in January, rate hikes loom
 

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Comments (4)
Jack Peterson
Jack Peterson Feb 16, 2022 10:51AM ET
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Trudeau is one of the most corrupt, inept and compromised political leaders in the world. He MUST GO
Shep De
Shep De Feb 16, 2022 9:15AM ET
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*USA 15% CPi by June
Shep De
Shep De Feb 16, 2022 9:14AM ET
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160 trillion home + home equity line of credit wealth in consumers' hands will accelerate inflation to 15% by June.What?! And what was that poll yesterday saying inflation will be 5.8%?LOL, don't make you die laughing, LOL
Shep De
Shep De Feb 16, 2022 9:13AM ET
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Pretty obvious, tightening cycle started with world leader, Britain, raising rates--wait, isn't USA the leader, to financially understand things? K? So USA being "herd material is showing the real leader is following. And, that is scary-scary folks; no matter, it is a 100% guarantee as Europe data today highly inflationary as is Canada's. USA, Canada, Europe all will be raising rates their next FOMC meetings. Inflation is out of control before we even get to spending months of spring and summer! Mark this post, folks
 
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