ECONOMIC NEWS
Desjardins, Economic Studies: 514‑281‑2336 or 1 866‑866‑7000, ext. 5552336 • desjardins.economics@desjardins.com • desjardins.com/economics
NOTE TO READERS: The letters k, M and B are used in texts and tables to refer to thousands, millions and billions respectively.
IMPORTANT: This document is based on public information and may under no circumstances be used or construed as a commitment by Desjardins Group. While the information provided has been determined on the basis of data obtained from sources that are deemed to be reliable, Desjardins Group in no way warrants that the information is accurate or complete. The document is provided solely for information purposes and does not constitute an offer or solicitation for purchase or sale. Desjardins Group takes no responsibility for the consequences of any decision whatsoever made on the basis of the data contained herein and does not hereby undertake to provide any advice, notably in the area of investment services. The data on prices or margins are provided for information purposes and may be modified at any time, based on such factors as market conditions. The past performances and projections expressed herein are no guarantee of future performance. The opinions and forecasts contained herein are, unless otherwise indicated, those of the document’s authors and do not represent the opinions of any other person or the official position of Desjardins Group. Copyright © 2021, Desjardins Group. All rights reserved.
Canada: Inflation Continues to Climb
By Benoit P. Durocher, Senior Economist
HIGHLIGHTS
f The consumer price index (CPI) rose 0.7% in October.
f The main components that contributed to this hike are gasoline (+5.0%), natural gas (+9.0%), telephone services (+4.5%), property taxes and other special charges (+1.5%) and digital media purchases (+25.3%).
f In contrast, the components that contributed the most to a drop are traveller accommodations (‑8.3%), dairy products (‑1.2%), air transportation (‑5.9%), tools and other household items (‑1.1%) and mortgage interest costs (‑0.3%).
f Total annual inflation climbed from 4.4% to 4.7%.
COMMENTS
The much-anticipated plateau in Canadian inflation didn’t materialize in October, as total annual inflation continued to climb. Gasoline prices rose again, and natural gas prices shot up on global disruptions. Monthly price growth was also exacerbated by larger than expected seasonal effects.
That said, inflation remains broad based. Components with inflation over 3% now account for about 55.1% of the CPI basket. Upward price pressures will likely continue in the months ahead. Preliminary data is already showing gasoline prices spiking again in November. Under these conditions, it will probably be a few more months before inflation starts to trend downward. In the meantime, total annual inflation should stay around where it is or increase lightly.
IMPLICATIONS
Ongoing inflationary pressure is worrying, and the risks continue to be strongly tilted toward the upside. In this environment, keeping key rates at the lower bound is increasingly untenable.
We now therefore believe the Bank of Canada may raise the target for the overnight rate in April.
ECONOMIC STUDIES | NOVEMBER 17, 2021
GRAPH 1
A further rise in total inflation
Sources: Statistics Canada, Bank of Canada and Desjardins, Economic Studies
Consumer price index (CPI) Annual variation in %
-0.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0
2015 2016 2017 2018 2019 2020 2021
Total CPI Range of core inflation measures
GRAPH 2
Gasoline, motor vehicles, housing and food are mostly driving the rise in inflation
Sources: Statistics Canada and Desjardins, Economic Studies
Contributions to the annual variation in total consumer price index In %
0 1 2 3 4 5
JAN. FEB. MAR. APR. MAY. JUN. JUL. AUG. SEP. OCT.
Gasoline Motor vehicle purchases
Homeowners' replacement cost Food bought in stores Food bought in restaurants Other components Total
