World Economy

Canada Inflation Exceeds Forecasts

Canada Inflation Exceeds ForecastsCanada Inflation Exceeds Forecasts

Canada’s inflation rate accelerated faster than economists predicted in October, led by gasoline and clothing and suggesting the economy may be running hotter than the central bank had thought.

The consumer price index rose 2.4 percent compared with the same month a year earlier, Statistics Canada said from Ottawa. That’s faster than all 21 economists in a Bloomberg News survey predicted. The core rate that excludes eight volatile products accelerated to 2.3 percent, the strongest in almost three years.

Inflation has exceeded the Bank of Canada’s 2 percent target in five of the past six months, making it more difficult for Governor Stephen Poloz to argue temporary factors are driving price gains. Canada’s dollar rose the most in almost two months after today’s report as traders speculated the central bank may have to bring forward its timetable for raising borrowing costs.

“It’s getting to a situation to where the Bank should be contemplating taking rates higher,” said Paul Ferley, assistant chief economist at Royal Bank of Canada in Toronto. Higher interest rates slow inflation by reducing the amount of money in circulation.

Bank of Montreal Senior Economist Robert Kavcic said in a report today inflation momentum has “broadened” from a year ago, with 56 percent of the index’s 18 major price categories exceeding a 2 percent annual pace.

Lending Rate

The inflation report adds to evidence there may be less room for companies to expand without raising prices. Canada’s jobless rate dropped to the lowest in six years in October. Statistics Canada revisions on Nov. 5 showed the country’s economy grew more in the first half of this year than the agency previously reported.

Policy makers have kept their benchmark overnight lending rate at 1 percent for more than four years, and economists surveyed by Bloomberg predict that rate won’t increase until the fourth quarter of 2015. The central bank predicted Oct. 22 inflation will average 2.2 percent from October to December, and core prices will average 2.1 percent.

Canada’s dollar strengthened 0.7 percent to C$1.1229 per U.S. dollar at 10:40 a.m. Toronto time. Two-year federal government bond yields rose to 1.07 percent from 1.05 percent.

Clothing and footwear price gains accelerated to 3.1 percent, from September’s 2 percent pace, as retailers offered fewer discounts, Statistics Canada said today.

Gasoline prices rose 0.6 percent in October from a year earlier. On a monthly basis, gasoline fell 4 percent in October, the fourth consecutive decline.

The next few inflation reports may show the gains in gasoline and clothing prices receding, Ferley said, citing a recent fall in fuel prices and a slower depreciation of Canada’s dollar that had boosted the cost of imported apparel. Today’s inflation gain was still broad enough to suggest price gains faster than Poloz expects, he said.

Food prices rose 2.8 percent in October, including a 12.4 percent surge for meat purchased at stores.