Inflation heated up to 2.1% annual rate last month
Price of gasoline was 19% higher in November compared to a year ago
The consumer price index, which calculates the official inflation rate, increased to an annual pace of 2.1 per cent in November as food and gasoline got more expensive, Statistics Canada reported Thursday.
The data agency noted that gasoline prices were more than 19 per cent higher in November than the same month a year ago.
"Normally, prices slip on average in November but higher gasoline prices this time around" changed that, Scotiabank economist Derek Holt said.
Food prices weren't up by quite as much, but staples such as fresh vegetables were 3.8 per cent more expensive during the month than they were a year earlier.
The inflation rate was higher in November compared to October in every province. The rate was highest in Saskatchewan at 3.7 per cent, with Quebec registering the lowest at 1.7 per cent.
Economists surveyed by Bloomberg had been expecting the rate to come in at around two per cent.
"Inflation suddenly doesn't feel so soft in Canada," Toronto-Dominion Bank economist James Marple said after the numbers were released. "The broad-based gain in prices in November echoes the trends seen in the rest of the economy."
The November CPI number is well ahead of the 1.4 per cent pace in October.
The strong inflation number caused the Canadian dollar to jump, with the loonie gaining more than half a cent to trade at 78.60 cents US.
The loonie rose, in part, because the strong inflation number may encourage the Bank of Canada to hike rates as soon as next month.
All things being equal, the bank hikes its interest rate when inflation is heating up, as a way to pump the brakes by making lending more expensive. When inflation is too low, the central bank tends to lower its interest rate as a way of encouraging people to borrow, spend and invest.
In this case, a 2.1 per cent inflation rate may give the Bank of Canada the green light to hike its rate again.
"The case for the Bank of Canada to follow the Federal Reserve in hiking interest rates is building," Marple said. "Don't be surprised if it comes sooner rather than later."
According to trading activity in overnight index swaps, investors now think there's about a 56 per cent chance of a rate hike in January. On Wednesday, that likelihood was lower, at around 46 per cent.