Canada: Inflation rises to highest level in two years
November 23, 2010
In October, consumer prices rose 0.4% over the previous month, adding to the 0.2% increase registered in September. The reading came in above market expectations, which had predicted consumer prices would rise 0.2%. As a result, annual headline inflation stepped up to 2.4% in October (September: +1.9% year-on-year), the highest level in two years. The main drivers behind the annual increase were higher energy prices (+9.1% yoy) and food prices (+2.2% yoy). Annual core inflation, which excludes oil and fresh food, stepped up to 1.8% in October (September: +1.5% year-on-year) but still remains below the 2.0% target set by the Bank of Canada (BoC). Despite the continued upward inflationary pressure, the Central Bank remains unlikely to raise interest rates, provided inflation does not increase further, as there is still uncertainty in the markets. The Bank of Canada forecasts inflation to average 2.1% in the fourth quarter of 2010. Consensus Forecast panellists expect inflation to average 1.7% this year, which is unchanged from last month's forecast. In 2011, the panel expects inflation to accelerate to 2.0%.