CANADA--Oil Prices Push Infation up, Interest Rates to Follow: Analysts : LUSENET : Grassroots Information Coordination Center (GICC) : One Thread

[fair use for education and research purpose only]

Oil prices push inflation up Interest rates to follow: Analysts


A "gas-tly" surge in inflation bolsters expectation that Canadians -- like their American cousins -- are in for more interest rate hikes.

Driven by surging crude oil prices, Canada's annual inflation rate in February was 2.7%, up from 2.3% in January, catching most analysts by surprise. Toronto's cost of living also soared to 3.3% from 2.6%.

It's the biggest jump since June 1995 and has economists warning the Bank of Canada will hit the brakes by hiking interest rates soon.

That hike could come next Tuesday when the U.S. Federal Reserve Bank's Open Market Committee meets and is also expected to raise rates to cool an American economy that is slowing but not slowing fast enough.

New figures released in Washington yesterday show Americans are still importing goods at record rates and that the economy grew last year at an unprecedented rate.

Statistics Canada reports February fuel prices rose 63.6% over 12 months, the biggest jump in 50 years, but one distorted by the fact that last year's oil prices -- $11US a barrel -- were severely depressed at their lowest price in nine years.

Yesterday's StatsCan report shows the rise in crude oil prices -- a reaction to the Organization of Petroleum Exporting Countries throttling back on production last year -- is starting to fuel inflation.

Even more troubling is the core inflation rate -- inflation less the volatile energy and food prices -- which rose to a year-over-year rate of 1.6% from 1.4%. The Bank of Canada has set a range of 1% to 3% as its inflation target.

"With gasoline prices flaring higher again in March, next month we could see inflation flirt with the 3% threshold," noted Sherry Cooper, chief economist with Nesbitt Burns, who headlined her analysis "a gas-tly report."

"The main message is that inflation, while still below U.S. trends, is moving higher, providing the Bank of Canada with more reason to continue to gradually tighten (raising rates)."

With OPEC expected to increase production and take the heat off oil prices March 27, TD Bank senior economist Marc Levesque says long-term core inflation is less likely.

-- (, March 16, 2000

Moderation questions? read the FAQ