Inflation has been fairly benign in Alberta since the 2008 downturn;
however, in October prices in this province jumped and inflation rose above the national average for the first time in two and half years.

Alberta’s overall price level rose by 1.0% in October bringing the annual inflation rate to a lofty 3.4%. This is the highest inflation rate the province has experienced since August 2008 when lofty energy prices were driving inflation around the entire world.

While October’s jump in prices does raise some eyebrows, the increase appears to be driven by just a few select items. Food and energy products were the main culprits. Food prices rose nearly across the board with prices for meat, dairy, and bakery & cereal products all up more than 5% from last year.

On the energy front, a surge in electricity costs drove the increase. Electricity prices tend to be far more volatile in Alberta than the
rest of the country and hence the jump in electricity costs will probably prove to just be temporary.

Nationally, the inflation rate came in higher than expected with prices increasing 2.9% from a year ago. The core inflation rate also remained above the Bank of Canada’s (BoC) target at 2.1%. While higher than expected inflation can sometimes be a harbinger of rising higher interestrates, with the European financial situation dominating all other headlines these days, the BoC is still
expected to remain on the sidelines for quite some time.

While the surge in Alberta’s inflation rate in September is something to watch closely, it appears to be partly due to temporary factors. Still, with Alberta’s economy growing strongly, inflation is likely to remain above 2% for the medium term after averaging less than 1% for the last two years.*

* Dan Summers, ATB Economist