The annual inflation rate in Canada rose a massive 3.7% last month due to an increase in gasoline prices. It now sits at the highest level in 8 years and has pushed the index limit far above expectations.
Analysts had expected the rate to fall 0.2% in April, but the month on month price rise more than doubled 0.7 from the origin al 0.3. These results cause problems for the Bank of Canada governors, with less than three weeks prior to a meeting, arranged to discuss short-term interest rates. The bank had predicted a rise above 3%, but no one contemplated that it would be above this limit for three consecutive months.
One of the main culprits was the rise was gasoline. From April it rose 2.0%, which made it 29.5% higher than May 2010. If you exclude the gasoline jump, annual inflation rates would be at a more casual 2.4%, and despite it still being above the likeable bank rate, it would be far more manageable. Other volatile items, such as selected foods and energy, only rose to 1.8% and continue to sit below the 2% target. In addition to this, it’s suggested that gasoline prices have fallen in June.
The Bank of Canada has set their target of between 1-3% in the short term, before decreasing to 2% by mid-2012. The only question is how they plan to keep the inflation manageable.