Inflation Rates Rise As Result of Heightened Food and Gas Prices

Statistics Canada reported on Friday that Canada's inflation rate was raised last month, as Canadians paid more for most things last months.

Prices for consumers rose 3.2 % in September, and the nation's annual core inflation rose up 3/10 of a point to 2.2 %.

All eight major tracking components - from clothing, to recreation costs, to housing - were higher this past month on an annual basis, says Statistics Canada.

Just like so many times before, the major causes of the rise in inflation rate last month were gasoline and food.

Gas prices were up 22.7 % over last year, while fuel oil prices rose 27.4 %, and natural gas fell 4.7 %.

Food prices were up 4.3 % from last year. Overall, consumers paid higher prices for meat - up 6.1 %; bakery products, up 7.2 %; and even fresh vegetables, which were up a staggering 13 %.

The country's underlying core inflation increased to its highest level in almost three years in September, noted Statistics Canada.

The core inflation rate is considered to be a more accurate reflection of inflation trends, as it excludes volatile items, such as gasoline.

The 3/10 of a point rise of the annual core rate to 2.2 % is the largest year-over-year gain since December of 2008. It's also the first time it's risen above the Bank of Canada's 2 % target since February of last year.

David Madani of the research firm Capital Economic commented on the numbers, predicting in a note to clients that the consumer price index will continue to rise "somewhat above" the Bank of Canada's expected projections, and that the inflation on food prices will reach at least 6 % by 2012.

However, while the rise in core inflation will likely grab the attention of the Central bank, few expect bank governor Mark Carney to raise interest rates in the coming week.

"We still believe the Bank will refrain from removing any further monetary stimulus for the foreseeable future," wrote Madani.

In fact, some actually predict Carney will cut rates. But in a note to his clients, Bank of Montreal's Doug Porter said the "Stickiness" of inflation makes this unlikely.

"While this result doesn't completely rule out rate cuts, it relegates them to only the most extreme circumstance," Porter said in the note.

"Moreover, if core stays close to this level -- let alone rises further -- the Bank of Canada may return to the tightening wheel sooner than most now expect, especially if financial markets stabilize."

The central bank has held its policy rate at 1 % for over a year and Carney has made it clear he is remaining vigilant for signs of weakness of the economy, as well as keeping an eye on the European debt crisis and the potential for another global recession.