Inflation hits 30-year high in Canada

The news could influence the Bank of Canada's decision on its benchmark rate next week

Inflation hits 30-year high in Canada

Consumer price inflation in Canada hit its highest level since 1991 last month, with that milestone arriving a week before the Bank of Canada is due to make its first policy rate announcement of 2022.

New figures released by Statistics Canada revealed that annual inflation was 4.8% in December, a result that was in line with economists’ expectations – but one that could still put pressure on the Bank to push forward its timeline for interest rate hikes.

That inflation rate was up 0.1% over November, meaning that it has now accelerated at its fastest rate for 30 years and signalling a ninth consecutive month in which the Bank’s target of 1% to 3% has been surpassed.

Some economists expect the Bank to raise its benchmark policy rate at next Wednesday’s meeting, a move that would see rate hikes begin much sooner than the current timeline of the middle quarters of 2022.

Read more: When will the Bank of Canada raise interest rates?

Silvana Dimino, a New York-based economist with J.P. Morgan, anticipated a 25-basis-point hike to 0.5% in the January 26 announcement, followed by as many as four further increases to leave the benchmark rate sitting around 1.5% by the end of the year.

That view was based on “heightened concerns” from the Bank that the output gap was closing more rapidly than expected, Dimino wrote in a note to clients, due to labour market dynamics and outperforming economic data.

The Bank has maintained its policy rate at 0.25% throughout the COVID-19 pandemic, although in recent statements it has pushed its forecast for rate increases forward from sometime in 2023 to the middle quarters of 2022 – possibly as early as April.