Canada Likely to Follow Suit With Interest Rate Increases

Based on rising inflation rates, there is a good chance that Canadian interest rates will soon be going up, following the footsteps of the United States and the United Kingdom.

The inflation rate in Canada hit an all-time high of 3.4% since March of 2003 in September, up 0.8% from the previous month.

The Canadian dollar went up by 0.80 of a cent U.S. on Tuesday, thanks in part to inflation and energy prices.

“Some further reduction of monetary stimulus will be required to maintain a balance between aggregate supply and demand over the next four to six quarters, and to keep inflation on target,” David Dodge, Bank of Canada governor, told the House of Commons yesterday.

There were various suggested reasons for the increase in inflation, including women’s apparel and increasing gasoline prices, which are up 34.7% from the same time last September.

The price of oil and gas in the United States has certainly also played a part in the surge of the Canadian dollar.

The core inflation rate continues to rise at the same rate that the Bank of Canada has anticipated.

There is some talk that another increase in the Canadian dollar could keep interest rates from rising, but, at the moment, we are still waiting to see what the effect the rising cost of energy will have on the market and the inflation rate.

 “This should allow the central bank to restore policy neutrality at a gradual rather than aggressive pace,” Sal Guatieri, senior economist at the Bank of Montreal, said. He added that he speculates a quarter of a point increase on each policy setting date, bringing the rate to 4.5%.