Statistics Canada reports that the country’s annual inflation rate went up by 2.4% on a year-over-year basis in October, following a 2.2% increase in October. This increase was mostly affected by factors such as higher airfare costs, higher gasoline prices and higher costs for shelter when compared to last year.
This latest hike shows a further deviation from Bank of Canada’s ideal 2% inflation rate target, however, many analysts aren’t too concerned about this slightly higher than expected increase. They expect the CPI to lose its upward momentum in the incoming months.
Though we still don’t have the data to show the effects the latest sharp decline in oil prices will have in the CPI, it’s safe to assume it will cause fuel prices to at the very least halt their upward acceleration.
“The impact is not negligible and will slow the pace of Canadian economic growth over the next two quarters.”
For the moment, experts like RBC senior economists Nathan Janzen expect the Bank of Canada to remain unfazed by the latest developments as the next interest-rate adjustment date of December 5th draws nearer. But that could change in the future if the current oil price slump continues its downward momentum.
“If we have something really unexpected happen on oil prices – like a dramatic (decrease) again – it will start affecting the expectations for the pace of rate hikes from the Bank of Canada going forward,” said Jenzen.
TD senior economist James Marple wrote that in a research note that falling oil prices could be a significantly influential factor in the Bank of Canada’s future adjustments of interest rates, since a drop in oil prices would lead to a drop in Canadian oil production and losses in income in energy-producing regions of the country.
“The impact is not negligible and will slow the pace of Canadian economic growth over the next two quarters,” Marple said.