The on-again, off-again expectations of another interest rate increase by the Bank of Canada appear to be on again.

The latest inflation figures from Statistics Canada put the Consumer Price Index, or headline inflation, at 4.0%. That is the second consecutive monthly increase, up from 3.3% in July. It also surpassed expectations. Analysts had been forecasting an increase to 3.8%.

Gasoline and groceries are cited as the main drivers of the increase, with mortgage interest and rent making substantial contributions.

More troubling is that readings for core inflation, which strip-out these factors, also increased and are now in the 4.0% area.

The next Bank of Canada interest rate announcement is set for October 25th and market watchers are split on whether there will be another increase at that time.

While the short term forecast is mixed, and there are several analysts who say the central bank has already gone too far, the expectations for the rest of the year are leaning toward another increase.

The situation in the U.S. can provide clues about what could happen here. The Federal Reserve paused rate increases at its latest setting, last week, but it has been clear it is ready to continue with hikes if necessary.

Sticky inflation that is based on factors beyond the BoC’s control make for a difficult balancing act as the Bank tries to control inflation without landing the economy in a nasty recession.

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