Inflation seems to have opened a global race:
U.S. players' CPI rose 7% year-on-year in December last year, a new high in nearly 40 years;
British players' December CPI increased by 5.4% year-on-year, the fastest growth rate in 30 years;
Germany's December CPI increased by 5.3% year-on-year, the biggest increase in 30 years...
On Wednesday, local time, according to data released by Statistics Canada in Ottawa, Canada's CPI in December increased by 4.8% year-on-year, the highest since 1991.
- The core inflation indicator averaged 2.93 percent and the previous at 2.73 percent, also the highest level in Canada in three decades.
- Canada's December CPI was -0.1% m/m, expected -0.1%, and previously 0.2%.
- Canada's wholesale sales in November were 3.5% m/m, expected 2.7% and 1.4% previously.
Among them, food prices have risen at the fastest rate in about 13 years, while the cost of home ownership has also increased at the highest rate in about 14 years. Gasoline offset these gains as the increase in gasoline prices eased compared to the previous year.
TD Securities said the December figures were in line with market expectations; if gasoline is not included, the CPI rose 4% in December.
The last time Canada's inflation rate exceeded 4.8 per cent was in September 1991, when the consumer price index rose by 5.5 per cent.
Three decades of inflation highs could reinforce expectations that the Bank of Canada will start a rate hike cycle as early as next week. The market is pricing up to six rate hikes up to possible over the next 12 months.
Andrew Kelvin, chief Canadian strategist at TD Securities, expects the Bank of Canada to raise its benchmark interest rate (currently 0.25%) by a quarter percentage point next week:
If the Bank of Canada is looking for a reason to keep interest rates unchanged in January, the December CPI data should disappoint them.
Citibank economist Veronica Clark said the likelihood that the Bank of Canada will rein in inflation in January may increase:
Indicators of inflation expectations and economic conditions point to a persistent and intensifying high inflation environment, which, despite new economic constraints such as those imposed by Amikeron, raise the likelihood that the Bank of Canada will rein in inflation in January.
In October last year, the Bank of Canada, known as one of the most hawkish "central mothers" in advanced economies, announced a monetary policy decision to keep the benchmark interest rate at the effective lower limit of 0.25%, completely end the QE volume of loose bond buying, and advance the expectation of interest rate hikes to the second quarter of this year.
Last December, the Bank of Canada and the country's Treasury jointly issued a statement updating the monetary policy framework for the next five years, with the addition of "maximizing sustainable employment" as the central bank's responsibility. The joint statement reiterated that the Bank of Canada will maintain 2% of the midpoint of its inflation target in the range of 1% to 3%, defined by the overall CPI's 12-month rate of change, continuing the inflation targeting framework in place since 1991, with the next review or modification occurring at the end of 2026.
The latest monetary policy framework gives the Bank of Canada the flexibility to use inflation-controlled zones, i.e. to tolerate CPI inflation rushing up to the 3% range cap over a period of time in order to achieve its employment objectives, and in some cases keeping interest rates low for longer.
The Bank of Canada will release its next interest rate policy decision on January 26.
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