Statistics Canada releases September CPI data:
- "In September, the CPI posted a 3.4% increase over September 2004."
- "On a monthly basis, the CPI All-items index rose by 0.9% in September. There have been only three increases of comparable magnitude over the past 15 years. Not since the introduction of the GST in January 1991, and the increase in tobacco and gasoline taxes in May 1989, has a monthly increase exceeded 0.9%."
- "Gasoline prices rose 34.7% and accounted for 1.5 percentage points of the 3.4% 12-month increase in the CPI."
- "For the past year, the 12-month change in the All-items index excluding energy has been between 1.4% and 1.7%."
- "[T]he All-items index excluding the eight volatile components as defined by the Bank of Canada remained stable. The 12-month percentage change remained at 1.7% in September and has not risen above 2% since December 2003.
The Bank of Canada has shown that it’s been willing to let CPI inflation drift temporarily outside the 1%-3% target for short periods of time while it absorbed temporary shocks: the most recent episode was in late 2002/early 2003, following a spike in energy prices and insurance premiums. In any case, it was already planning a series of rate hikes.
Worthwhile Canadian Initiative 
So what’s causing the strong loonie? Oil prices? Faith in the Canadian economy?
It seems these rate hikes are going to make the loonie stronger.
Regardless of their past plans, shouldn’t the BoC allow the deflationary pressures of high energy prices and a strong Cdn. $ to work their magic?
I’ve got an insect in my posterior about high interest rates.
The CAD is certainly helped by oil prices and the trade surplus. And the rising CAD has helped keep domestic inflation below what it might have been otherwise. That said, current interest rates are pretty low compared to their ‘neutral’ levels.
3% isn’t high. At least, not to those of us who remember the 21% bank rate we saw in August 1981.