Energy costs will propel the headline inflation rate "well above'' three per cent in the coming months, Bank of Canada governor David Dodge said last week.
However, he added, this may not skew the underlying trend of overall prices, which were rising in August at a 2.6-per-cent rate, as reported by Statistics Canada last week.
Dodge said central bank governors worldwide are trying to determine how much the swelling of oil prices since hurricane Katrina will feed through into prices for other goods and services.
"It is our expectation that following Katrina and maybe following (hurricane) Rita - we'll have to wait and see - headline inflation is going to build well above three per cent in the coming months,'' he told reporters after a speech.
"We still view that as a spike, but the longer it goes on, obviously the greater the risk that it is going to feed through'' into a sustained general rise in prices.
He also observed that "petroleum-based energy is likely to end being a constraint on growth going forward.'' Core inflation - excluding energy and other volatile factors - was running at 1.7 per cent in August, below the central bank's target of two per cent. But the August headline rate, up from two per cent in July, was the highest in more than two years.
Dodge skirted specific issues of monetary policy amid widening worries about the economic impact of high oil prices and the strong Canadian dollar.
But he said Canadians - specifically Central Canadians - have to "get on with'' adjusting to the bonanza of resource dollars flowing into Alberta and other resource-rich provinces at a time when the strong loonie is oppressing manufacturing exporters.
"However painful this is, both for businesses that have to change or for the labour force ... the income benefits (of resource revenues) do get spread around - it does take time, it doesn't happen overnight,'' he said.
In the meantime, while Alberta surges but Ontario and Quebec suffer, the central bank's role is simply to "operate to keep inflation low.'' He said in his speech that Canada does not need different securities regulations for different provinces, but it does make sense to apply different rules to different sizes of businesses.
While stopping short of explicitly calling for a single national securities regulator as favoured by Ontario and the federal government, Dodge stressed that "efficiency dictates that Canada should have uniform securities laws and regulations based on principles that apply to everyone.'' He told about 600 people at the luncheon of the Toronto Chartered Financial Analysts Society that "there is no need for different rules to be applied based on the province or territory of the issuer or the investor.'' Critics of the current system of 13 provincial and territorial securities commissions see it as backward, needlessly complex, expensive and wasteful of enforcement resources.
But Quebec, Alberta and British Columbia lead opposition to the idea of a single regulator, arguing that the needs of small regional companies would be overwhelmed by the interests of big Central Canadian corporations.
Dodge suggested this concern could be dealt with in a "tiered way.'' Large, complex, international companies would need to meet rules similar to those in New York or London, while different rules could apply to small, speculative resource firms, and a middle tier of regulations would cover the bulk of Canadian mid-sized companies.
On another matter, Dodge said the central bank will not comment publicly during the federal government's consultation on the future of income trusts.
"It is a very difficult issue,'' Dodge, a former deputy minister of finance, said in his speech, "and thank God I'm no longer with the Department of Finance.'' He said later that the recent mass migration of companies to avoid corporate tax by embracing trust status has had a complex impact that is difficult to separate from other financial-sector developments.
"Investment is lower than one might expect'' given the health of corporate balance sheets and the economy, he said, but it's hard to know whether this is because of the trust sector's payment of distributions to unitholders rather than investing in the future.
