When you gotta go, you gotta go

Canada's headline consumer price index ticked up to a fresh 30-year high in December, according to data released by Statistics Canada this morning.  The year-on-year rate stood at 4.8 percent, up from 4.7 percent in November. All eight components tracked by StatsCan were higher year on year, although -- in what just might be a positive sign of things to come -- seven of the eight actually fell from November to December.  

Food, shelter and energy prices continue to lead the gains. Food prices were up 5.2 percent from a year ago, led by higher prices for imported fresh produce, which StatsCan attributes in part to supply chain disruptions.*  The shelter index rose 5.4 percent, with increased insurance costs adding to the upward lift from low interest rates. Energy costs rose 8.9 percent, led by a 33 percent rise in gasoline prices, although it should be noted that gasoline actually declined in price from November to December. Excluding food and energy, the year-on-year rise in CPI was 3.4 percent. 

The fact that the upward pressure on inflation is being led by food, shelter and energy is significant for policymakers. These are the daily/weekly/monthly costs that quite literally hit people where they live. Even if supply chain disruptions start to ease this year,  there is a clear risk that the increase in these categories, which most people already think is much higher than the official data suggest, will serve to boost inflation expectations, an outcome the Bank of Canada is very anxious to avoid.

The Bank's three preferred measures of core inflation are also sending a cautionary message. All three moved higher in December. One of these, CPI-trim, now stands at 3.7 percent, above the CPI ex food and energy figure of 3.4 percent, and the average of the three indices is just below 3 percent.  

Both the Bank of Canada Governing Council and the Fed Open Market Committee meet next week, with rate announcements set for January 26. Canadian markets are pricing in about a 75 percent likelihood of a 25 basis point rate hike this month, and the odds of an identical move by the Fed must also be high. For both central banks, this is likely to be the first step in a tightening cycle that will see at least four hikes by the end of this year.

* I can report on the basis of a visit to our local independent food emporium this morning that there is no evidence of any gaps on the shelves, despite scare stories in the media. Gigantic Mexican eggplant and zucchini abound.