Canada’s Inflation Rate Rose 4.1% In August From A Year Earlier

Inflation in Canada rose 4.1% in August from a year earlier, its fastest pace of growth since 2003.

The rise in consumer prices puts pressure on the Bank of Canada to raise interest rates to bring inflation closer to the central bank’s 2% target and is likely to become a political issue in the final days of the current federal election campaign.

August marked the fifth consecutive month of inflation being above the Bank of Canada’s 3% ceiling. The 4.1% rise in August was the highest level of inflation in Canada since March 2003, when it reached 4.2%. Economists were predicting a yearly gain of 3.9% for this August.

A surge in housing costs has been a key driver in annual inflation this year. Although policy makers are likely to view inflation as transitory, the report comes in the final days of an election where affordability is a central campaign issue.

Gasoline and the homeowners’ replacement cost index-- related to new home prices -- were the largest contributors to inflation in August. The shelter index rose 14.3% in August from a year earlier, the largest yearly increase since 1987.

Gas prices rose 32.5%, largely because of lower production by oil producing countries and artificially low prices last year when the pandemic shutdown much of the economy.

The Bank of Canada’s latest forecasts show inflation creeping up to 3.9% in the third quarter of this year driven by global supply chain disruptions and pent-up demand for services as the economy reopens.

On a monthly basis, consumer prices rose 0.2% compared with economist estimates of a 0.1% gain. The monthly increase in August was driven by a sharp increase in the cost of airplane tickets and other travel-related expenses.