Canadian inflation hits 31-year high

Canada’s annual inflation rate accelerated faster than expected in March, hitting a 31-year high amid broad price pressures, official data showed April 19, 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 1-3 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. 

Why it matters: Inflation is causing the price of everything to soar, which means a more expensive growing season for farmers and consumers will be choosy with how they spend their food dollars. 

The bank raised rates by half a percentage point last month and said more increases were coming to fight inflation.

“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 to the greenback, 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 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, Statscan said.

Statscan 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.”

Governor Tiff Macklem said the central bank would continue to act “forcefully” if needed. Money markets see a 65 per cent chance the Bank of Canada will go ahead with a second 50-basis-point hike. It typically increases by 25 basis points.

The CPI common measure, which the Bank of Canada says is the best gauge of the economy’s performance, rose to 2.8 per cent from a revised 2.7 per cent in February. CPI trim was 4.7 per cent and CPI median was 3.8 per cent.