Reuters – Canada’s annual inflation rate accelerated faster than expected in March, hitting a 31-year high amid broad price pressures, official data showed April 20, pointing toward another oversized rate hike from the Bank of Canada in June.
The headline rate hit 6.7 per cent in March, well above analyst expectations of 6.1 per cent and a full percentage point higher than in February. It was the 12th consecutive month above the central bank’s one to three per cent control range and just short of the 6.9 per cent hit in January 1991.
The higher-than-expected number increases the likelihood of the Bank of Canada making another large rate hike when it next meets in June. The bank raised rates by half a percentage point last week and said more increases were coming to fight inflation.
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“I think a 50-basis-point rate hike was always likely in June… This cements it,” said Andrew Kelvin, chief Canada strategist at TD Securities. He added that a 75-basis-point move would still be unlikely.
The Canadian dollar rose to a three-week high of 1.2503 relative to the U.S., or 79.98 U.S. cents, after the data.
Countries around the world are grappling with hot inflation coming out of the COVID-19 pandemic amid booming demand and supply chain bottlenecks. Russia’s invasion of Ukraine has put additional pressure on key commodity prices, adding to the pinch.
Canadian gasoline prices were up 11.8 per cent on the month in March and 39.8 per cent on the year, as global oil prices surged on the Ukraine conflict. Food prices jumped 8.7 per cent on the year, with pasta and cereal products up on wheat futures, according to Statcan.
Statcan noted continued price pressures on housing and said a very tight labour market was driving wage inflation. Durable goods rose at the fastest rate since 1982, driven by vehicle and furniture prices.
“That’s just broadening inflation. That’s a tight economy and tight labour market,” said Jimmy Jean, chief economist at Desjardin Group. “It screams for the Bank of Canada to maintain that accelerated pace of normalization.”
In mid-April, Bank of Canada governor Tiff Macklem said the central bank would continue to act “forcefully” if needed.
