Canada's annual inflation rate hits 4.8% in Dec to three-decade high

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FILE PHOTO: Holiday Shopping in Toronto

TORONTO (Reuters) - Canada's annual inflation rate accelerated to 4.8% in December, the highest since September 1991, Statistics Canada said on Wednesday.

Analysts polled by Reuters had expected the annual rate to rise to 4.8% in December.

STORIES:

Market reaction: CAD/

Link: https://www150.statcan.gc.ca/n1/daily-quotidien/220119/dq220119a-eng.htm

COMMENTARY

ANDREW GRANTHAM, SENIOR ECONOMIST, CIBC CAPITAL MARKETS

"A few weeks ago we may have been tempted to call a peak in inflation at this point. However, a reacceleration in energy prices, transportation issues impacting food costs and a strengthening once again in monthly house price gains suggest that we could grind a little higher still, before seeing a deceleration starting around spring time."

"For the Bank of Canada, headline inflation in Q4 as a whole was slightly below its October MPR forecasts, although there may be increasing concern regarding the length of time it will remain elevated for and a broadening of price pressures outside of food, energy and supply constrained items."

ANDREW KELVIN, CHIEF CANADA STRATEGIST AT TD SECURITIES

"The increase in the core metrics does catch my eye insofar as that speaks to pay increasing underlying inflationary pressures. And I think on balance between that and the on-consensus headline print, you'd have to put this in the hawkish camp, in the sense that this probably does incrementally ratchet up pressure on the BOC to start lifting rates sooner rather than later."

"I think (the rate increase) will be in January. I think that makes the most sense. I have a lot of time for the argument that they should wait until March to get through this current wave of public health measures. But I think ultimately, given the risk of inflation expectations starting to become untethered, it makes more sense and is more prudent for them to go in January. So I look for a rate hike of 25 basis points in January."

"I think they (the BoC) did do a reasonable job of signaling (a rate hike) in December in some of the speeches. ... The markets price more than a 50% chance of a rate hike next week now. So you know, they (the BoC) can plausibly look at market pricing and say, we are reacting to the data the same way the market was, which was a line you did hear from (former) governor (Stephen) Poloz from time to time as well."

DEREK HOLT, VICE PRESIDENT OF CAPITAL MARKETS ECONOMICS, SCOTIABANK

"The think I'd emphasize would be the further increase in the average of the core measures ... We have core inflation getting to the upper end of the bank's (Bank of Canada) target range and I think that's going to spook them."

"The worst thing they can do during the pandemic is to show they are not serious about containing cost of living pressures."

(Reporting by Fergal Smith, Steve Scherer; Editing by Denny Thomas)

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