Another unwanted record

Yet another unwelcome surprise on the inflation front in Canada. Statistics Canada reported today that headline CPI rose 5.1 percent year-on-year in January, up from 4.8 percent in December. That's the fastest pace since September 1991. Lest anybody should miss the point (we're looking at you, Tiff Macklem), StatsCan carefully recorded in the first paragraph of its press release that exactly a year ago, the year-on-year increase in CPI was 1.0 percent.

Excluding gasoline -- which continues to soar in price, rising 4.8 percent in the month of January alone -- the increase was 4.3 percent. That is, of course, still far above the Bank of Canada's 2 percent target.  In any event, with all components of the index rising, there is less and less consolation to be had from leaving out the more volatile components. Ominously, the month-to-month increase in headline CPI for January was a whopping 0.9 percent, and with gas prices at the pump still rising on an almost daily basis, there is little sign of any early reversal in the adverse trend. 

The Bank of Canada's three preferred measures of core inflation all tell the same story as the headline figures.  All three measures rose yet again in January; one of them -- CPI-trim -- has now reached 4.0 percent, and the mean of these measures is now 3.1 percent.

Given these trends, the Bank of Canada's decision not to start raising rates in January is just as incomprehensible as the lack of action from the Federal Reserve.  Both central banks have stated that one of their key aims is to keep inflation expectations well-anchored to the 2 percent target level. The longer inflation is allowed to keep moving further and further above that level, the harder that is likely to be. 

UPDATE, 17 February:  Globe and Mail headline -- "Bank of Canada may need to be 'forceful' in face of high inflation, Deputy Governor says". Too late for that!