OTTAWA (CU)_Last month, the Bank of Canada (BoC) opted against raising its benchmark interest rate, despite inflation surging well past its target of two per cent. Now, central bank has been left worried if it had made a mistake by passing on an opportunity to hike interest rates in January, as the country’s main inflation gauge glows an even brighter shade of red. A report published by Statistics Canada on Wednesday showed that in January, the consumer price index (CPI) increased 5.1 per cent from a year earlier, marking the first time the index exceeded 5 per cent since September 1991. This would mean the BoC would have to play catch-up, after failing to rise the benchmark rate last month.
Given the current pace of growth in inflation, the apex bank is expected to raise interest rates at its next round of policy deliberations on 2 March. The figures could also trigger a debate over if borrowing costs should be lifted by half point instead of the customary quarter-point increase.
The hike in the CPI to 5.1 per cent, from 4.8 per cent did not come as a surprise to the Bank of Canada, which projected an annual average increase of 5.1 per cent in the price index over the first quarter of this year. However, experts are of the view that central bank Governor Tiff Macklem won’t like some of the details in Statistics Canada’s latest reading on the hundreds of goods and services it monitors, as all the groups used by the national statistical office to arrange the items in its price basket posted significant gains. At 4.3 per cent, the CPI excluding gasoline reported the biggest annual gain since Statistics Canada introduced the measure in 1999 to get a clear read on cost pressures since oil prices are so volatile.
“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,” chief economist at BMO Capital Markets, Douglas Porter, said in a note to his clients. “We look for four in a row to start, and it may well require much more than that to bring inflation to heel.”
