Canada’s headline inflation rate has gone up for the second straight month, and some experts are warning that the trend could mean another Bank of Canada interest rate hike is in store for October.

Inflation rose to four per cent in August, according to Statistics Canada’s consumer price index (CPI) report released Tuesday, with reacceleration mainly spurred by high food and gasoline prices.

“That's a second straight month now of disappointing CPI numbers for Canada,” Sal Guatieri, Director and Senior Economist of BMO Capital Markets, told BNN Bloomberg in a television interview on Tuesday.

“It is worrisome that the (CPI median) has now moved back above four per cent. Remember, the Bank of Canada's been very concerned about the sluggishness in the pace of decline in some of these underlying or core measures of inflation, and that number will only aggravate its concerns.”

In addition to high food and energy prices, Guatieri noted that higher prices across the services sector including the cost of renting are putting pressure on Canadian consumers.


The Bank of Canada is set to make its next interest rate decision on Oct. 25, after holding rates at five per cent earlier this month.

Some experts said Tuesday’s inflation numbers may lead to another Bank of Canada interest rate hike next month, but others believe the central bank will leave rates steady as long as the economy remains stagnant.

“August’s eye-popping inflation report means another rate hike is now in the picture,” Tu Nguyen, economist with accounting and consultancy firm RSM Canada, said in a written statement on Tuesday.

“Even though inflation was expected to increase due to gasoline prices, rents, and the base year effect, there is no way around it: four per cent is simply too high for comfort.”

Nguyen said if inflation remains stubborn in next month’s CPI report for September, an October rate hike will become even more likely, and the economy could enter into a recession as a result.

Kathy Lien, managing director of BKForex, agrees with that view. She said the Bank of Canada may follow in the footsteps of the European Central Bank and Bank of England, the former having raised interest rates last week, and the latter considering whether to do so in the coming days. 

“I think that the chance of another Bank of Canada rate hike is greater than the market anticipates,” she said in a BNN Bloomberg television interview Tuesday.

The head of Canada and Mexico economics at Bank of America, meanwhile, said the latest inflation data doesn’t change his belief that the Bank of Canada is finished with rate hikes for now – but he acknowledged that the core inflation data did come as a “big surprise,” and he didn’t rule out another hike in the future.

“Certainly, this means that there are upside risks for the Bank of Canada. They could hike again,” Carlos Capistran told BNN Bloomberg on Tuesday, adding that he still leans towards expecting an October hold from the central bank.

“The economy already contracted, the unemployment rate seems to have bottomed out,” he said. “I will wait for the next inflation print to make up my mind … but I still think they’re done.”

Guatieri also said he considers a hike unlikely next month, as it would further slow down an economy he described as “flat on its back.”

“I don't think the Bank of Canada wants to push its luck too much and raise rates further,” he said.

“I think that the main story is that even though rates may not need to go higher, they probably will stay at high levels for a longer period of time, so we clearly don't expect the Bank of Canada to cut interest rates at least until next spring.”