Higher Energy Costs Drive Canadian Inflation to a 20-Year High

Similar to its southern neighbor, Canada’s Consumer Price Index (CPI) jumped in October, registering its largest gain since 2003. The print upped the odds that Bank of Canada would begin increasing interest rates sooner than expected.

The CPI is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. Canada’s CPI rose 4.7% on a year-over-year basis in October, up from a 4.4% increase in September. Removing the volatile energy group, inflation rose 3.3% year over year, matching September’s data. For October the CPI rose 0.7%. The supply and demand strife in global energy markets has caused a 42% jump in gasoline prices, causing the jump in the energy group.

While all major components rose on a year-over-year basis in October, transportation prices contributed the most. Transportation had the highest increase since March 2003 primarily driven by a rise in energy prices.

Inflation has been running higher than the Bank of Canada’s comfort zone of 3% for seven months running, putting pressure on the central bank. Year-over-year increases in the CPI exceeded 3% for six consecutive months through March 2003.