Canada's annual inflation rate in August jumped to 4.0% from 3.3% in July, primarily due to higher gasoline prices, according to data released on Tuesday.
This development has raised expectations that the central bank might be compelled to raise interest rates once again, marking the 11th increase since March of the previous year.
Analysts surveyed by Reuters had predicted that inflation would reach 3.8%. In August, the Consumer Price Index (CPI) increased by 0.4% on a month-over-month basis, surpassing expectations of a 0.3% gain, as reported by Statistics Canada.
Two of the three core inflation measures also experienced increases.
This annual rate, the highest since the 4.4% reported in April, is twice the Bank of Canada's target of 2%. The primary driver of this increase was a year-on-year rise of 0.8% in gasoline prices, which had dropped by 12.9% in the 12 months leading up to July.
Derek Holt, Vice President of Capital Markets Economics at Scotiabank, cautioned against making overly certain claims that the central bank has concluded its rate hikes. He emphasized the need to remain open to the possibility of additional rate hikes.
Bank of Canada Deputy Governor Sharon Kozicki noted that fluctuations in inflation, as observed in the past few months, are not unusual, and she highlighted the importance of focusing on measures of core inflation. She emphasized that underlying inflation remains well above the 2% target for CPI inflation.
Following the release of this data, money markets increased their expectations for a rate hike in October, with a 42% chance of an increase compared to 23% prior to the inflation figures.
The Canadian dollar strengthened by 0.6% to 1.34 against the US dollar, reaching its highest level since August 10.
However, further inflation reports and additional data releases are expected before the Bank of Canada's next meeting on October 25, where the key overnight rate will be determined.
Some analysts believe that the likelihood of a rate hike remains low, as economic growth has slowed and unemployment figures are trending upward. This perspective contrasts with the anticipation of additional rate hikes.
Shelter prices in August rose by 6.0%, driven in part by rising rents and higher interest rates.
Canadian Prime Minister Justin Trudeau's government is introducing legislation to encourage the construction of rental properties amid a housing shortage.
The country's major grocery chains recently committed to assisting the government in stabilizing rising prices.
Food-price inflation at stores eased to 6.9% year-on-year in August from 8.5% year-on-year the previous month.