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Canadian inflation rises at fastest pace since 2003

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People shop at a supermarket in Vancouver, British Columbia, Canada, on Oct. 20, 2021. Canada's Consumer Price Index CPI continued rising to hit 4.4 percent on a year-over-year basis in September, the highest since February 2003, due to increased prices for transportation, shelter and food, according to Statistics Canada on Wednesday. (Photo by Liang Sen/Xinhua via Getty Images)
Bacon prices are up 20 per cent compared to last year. (Photo by Liang Sen/Xinhua via Getty Images)

The Consumer Price Index (CPI) rose 4.7 per cent on a year-over-year basis in October, which was in line with expectations.

Statistics Canada says this follows a 4.4 per cent increase in September and is the largest gain since February 2003.

Prices rose in all eight major components. Transportation prices were up 10 per cent, driven primarily by a 25.5 per cent increase in fuel costs.

Those higher fuel costs were in turn driven by higher gasoline prices, up 41.7 per cent. Shortages in other energy sources, such as coal and natural gas, led to major economies using oil instead, causing pain at the pumps.

Excluding energy, CPI falls to 3.3 per cent.

It wasn't just gasoline that made driving more expensive. Prices for passenger vehicles were up 6.1 per cent amid a global shortage of semiconductor chips. Parts, accessories, and supplies rose 3.6 per cent.

Supply chain challenges as well as labour shortages and rising prices for livestock feed helped push meat prices higher.

Meat products were up 9.9 per cent. Fresh or frozen beef was up 14 per cent. Processed meat was up 8.5 per cent, which includes a 20 per cent jump for bacon.

A migration to eastern provinces helped push up rent prices. Prince Edward Island was up 7.6 per cent, Nova Scotia was up 7.1 per cent, and New Brunswick rose 9.4 per cent. Meanwhile, rent fell 2.3 per cent in Newfoundland and Labrador.

Bank of Canada won't panic

The Bank of Canada's preferred core measure remains below 2 per cent.

"While the central bank still suggests that there is considerable slack in the economy, consistent with low measure of underlying inflation, policymakers are clearly becoming more uncomfortable with the headline inflation readings," said CIBC senior economist Royce Mendes.

"That being said, the latest Monetary Policy Report projected an average inflation rate of 4.8 per cent in Q4, suggesting that today's reading won't do much to alter central bankers' thinking on the timing of rate hikes."

Inflation isn't going away yet

Tu Nguyen, an economist at audit, tax & consulting services firm RSM, says consumers will face higher prices for a while.

"Inflation will hit 5 per cent by year's end as gasoline prices stay elevated. Food prices will keep climbing as most fresh produce is imported when Canada's ground freezes over, and the supply chain that gets produce from Central America and Asia to Canadian supermarket shelves is now facing enormous bottlenecks, said Nguyen

"However, inflation will fall in mid to late-2022 as the rest of the world reopens, the supply chain knots get untied, and energy prices go down."

Jessy Bains is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jessysbains.

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