Inflation Holds Near the Bank of Canada’s Target Amid Tighter EconomyBy
December inflation was 1.9%, after 2.1% gain in November
Core consumer prices rose 1.8% in December, fastest since 2016
Canadian inflation hovered at about the central bank’s 2 percent target for a second month in December, the result of a year of strong growth that is finally beginning to produce signs of more normal price pressures.
Annual inflation was 1.9 percent in December, slightly down from 2.1 percent in November, Statistics Canada reported Friday in Ottawa. It marks only the second time in the past three years the economy has produced two-month inflation averaging at least 2 percent.
The price strength reflects an economy running up against capacity constraints following a stellar performance in 2017. That is adding pressure on the Bank of Canada -- which has kept the expansion going with low interest rates -- to keep hiking borrowing costs to more normal levels.
“This is firm enough to keep the Bank in tightening mode, but still mild enough to keep the tightening pace gradual and cautious,” Doug Porter, chief economist at Bank of Montreal, said in a note.
Investors are anticipating at least two more increases this year, after the Bank of Canada hiked borrowing costs three times since July. The Canadian dollar was little changed following the report at C$1.2328 per U.S. dollar at 8:42 a.m. in Toronto trading.
The pick-up at the end of 2017 brought average inflation for the year to 1.6 percent, which was stronger than 1.4 percent in 2016 and 1.1 percent in 2015. The Bank of Canada expects inflation will stay at about 2 percent on average over the next two years -- in line with an economy around full capacity.
The average of the Bank of Canada’s three key core inflation measures -- which excludes volatile items such as energy and is considered a gauge of inflation pressures -- rose to 1.8 percent in December, the highest since October 2016.
Highlights of Canada December CPI
— With assistance by Erik Hertzberg