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

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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.

(Additional reporting by David Ljunggren and Steve Scherer in Ottawa, and Fergal Smith in Toronto; Editing by David Holmes, Mark Heinrich and Jonathan Oatis)

Economy

How will the U.S. election impact the Canadian economy? – BNN Bloomberg

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How will the U.S. election impact the Canadian economy?  BNN Bloomberg



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Trump and Musk promise economic 'hardship' — and voters are noticing – MSNBC

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Economy stalled in August, Q3 growth looks to fall short of Bank of Canada estimates

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OTTAWA – The Canadian economy was flat in August as high interest rates continued to weigh on consumers and businesses, while a preliminary estimate suggests it grew at an annualized rate of one per cent in the third quarter.

Statistics Canada’s gross domestic product report Thursday says growth in services-producing industries in August were offset by declines in goods-producing industries.

The manufacturing sector was the largest drag on the economy, followed by utilities, wholesale and trade and transportation and warehousing.

The report noted shutdowns at Canada’s two largest railways contributed to a decline in transportation and warehousing.

A preliminary estimate for September suggests real gross domestic product grew by 0.3 per cent.

Statistics Canada’s estimate for the third quarter is weaker than the Bank of Canada’s projection of 1.5 per cent annualized growth.

The latest economic figures suggest ongoing weakness in the Canadian economy, giving the central bank room to continue cutting interest rates.

But the size of that cut is still uncertain, with lots more data to come on inflation and the economy before the Bank of Canada’s next rate decision on Dec. 11.

“We don’t think this will ring any alarm bells for the (Bank of Canada) but it puts more emphasis on their fears around a weakening economy,” TD economist Marc Ercolao wrote.

The central bank has acknowledged repeatedly the economy is weak and that growth needs to pick back up.

Last week, the Bank of Canada delivered a half-percentage point interest rate cut in response to inflation returning to its two per cent target.

Governor Tiff Macklem wouldn’t say whether the central bank will follow up with another jumbo cut in December and instead said the central bank will take interest rate decisions one a time based on incoming economic data.

The central bank is expecting economic growth to rebound next year as rate cuts filter through the economy.

This report by The Canadian Press was first published Oct. 31, 2024

The Canadian Press. All rights reserved.

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