OTTAWA — Canada’s inflation rate jumped past three per cent last month, but with the economy’s foundations in quick-sand, there is little prospect of a Bank of Canada response.
The surprisingly strongly gain in the Statistics Canada consumer price index to 3.1 per cent, from 2.7 in July, reverses a recent trend towards more moderate inflation.
But economists pointed to Bank of Canada governor Mark Carney’s comments Tuesday that he believes consumer prices will moderate as food and energy costs unwind in the face of a slowing global economy.
Even if he wanted to, the traditional response to contain inflation — hike interest rates — would appear out of the question at the moment, said David Madani of Capital Economics.
“The anticipated economic slowdown we have long envisaged has now completely shut the door on any interest rate increases anytime soon, with rate cuts now more likely than before,” he said.
As well, Carney and most analysts remain convinced that the higher-than-expected price increases are due to temporary factors.
The central banker said this week he anticipates the higher levels of food and energy will “unwind” as the economy slows.
Bank of Montreal economist Michael Gregory adds that August’s jump was also partly due to one-off “administered” increases, such as adjustments to electricity rates and insurance premiums.
“Yes, it’s a little bit worrisome,” he said of the inflation jump. “But I’m not worried at all whether the underlying trends have changed.”
Money markets also saw no likelihood of a Bank of Canada reaction and punished the loonie after the news, dropping the currency 0.36 of a cent to 100.28 cents US.