Canada column for Sunday, April 24/11
THE CANADIAN REPORT
By Jim Fox
Canadians could soon be facing higher interest rates after a sharp increase in the inflation rate propelled by higher gasoline and food prices.
A spike in the rate last month to 3.3 percent was the biggest single-month inflationary increase since September 2008 and was a setback as Canada had been beating global trends, economists said.
The Bank of Canada prefers to keep inflation around two percent with anything higher leading to the prospect of raising the key interest rate to cool off the economy.
The good news in the latest numbers was that "core" inflation was 1.7 percent higher as it excludes volatile items including gasoline but was still almost twice the 0.9 percent rate in February.
Canada's central bank had predicted inflation would reach 3 percent this spring and then back off.
The April inflation figures will be known before the central bankers consider an interest-rate increase at its next meeting on May 31.
The bank "won't be comfortable keeping rates on hold beyond the next meeting if this (higher inflation) is not a fluke," said economist Douglas Porter of BMO Capital Markets.
There are predictions the key rate will rise to 3.5 percent by next year, up from 1 percent now.