Tame inflation in CanadaThursday, April 17, 2008
OTTAWA — Total inflation rose 1.4 per cent in March from a year ago, the slowest pace since January and the fourth straight month of deceleration.
Analysts had been expecting a 1.5 per cent increase, after a 1.8 per cent rise in consumer prices in February.
The core rate of inflation, which excludes the most volatile prices such as energy and some types of food, rose just 1.3 per cent, compared to February's 1.5 per cent. Economists had been expecting 1.4 per cent.
The March data confirm that inflationary pressure in Canada is mild, despite concern in the rest of the world that inflation is getting out of hand.
Compared to a month earlier, the consumer price index for all goods rose 0.4 per cent in February, the same as the previous month. Core inflation rose 0.3 per cent on the month in March, slower than the 0.5 per cent seen in February.
For the 12-month change, the main inflationary pressure came from mortgage interest costs, which rose 8.3 per cent – even though the central bank is cutting its key lending rate. The inflation number is one more sign that the global credit crunch is taking a toll in Canada, despite attempts by the Bank of Canada to mitigate the costs.
Gasoline prices rose 7.9 per cent over the past 12 months, which is much less than the 17.1 per cent jump noted in February, Statistics Canada said.
Looking at the 12-month change in the core rate of inflation, which the Bank of Canada uses to monitor how close prices are to its 2-per-cent inflation rate target, the deceleration was mainly due to lower automobile prices, Statscan said.
By province, Ontario showed the most stable prices, with total inflation reaching just 0.8 per cent for the past 12 months – a reflection of that province's slowing economy.
In Alberta, prices came back down to earth, with total inflation rising 2.9 per cent in March, over a year ago, compared to 3.5 per cent seen in February.
The highest inflation rate in March was seen in Saskatchewan, where total inflation was 3.2 per cent, pushed by a whopping 46.7 per cent annual increase in the costs of maintaining a home there. The province is in the midst of a raging real estate boom.
“Inflation remains of little concern in Canada,” said Derek Holt, economist at Scotia Capital. “Shelter and transportation costs have really been the only broad sources of upward pressure on consumer prices in Canada.”
Mr. Holt said he expects inflation to continue to decelerate in Canada as home prices cool off.
Food prices in Canada rose 0.4 per cent in March compared to a year earlier, with bakery products climbing 9.0 per cent because of the rising cost of wheat. But the price of fresh vegetables dropped a huge 17.8 per cent, the largest annual decline in 12 years. While the strengthening Canadian dollar contributed to the drop, fresh vegetable prices spiked higher at this time last year because of extraordinary frost in California, Statscan said.
Excluding food prices at restaurants, grocery prices in Canada declined again, falling 0.3 per cent compared to a year ago.
“This benign report simply reinforces the point that Canadian inflation remains an oasis of calm amid raging global price pressures,” said Doug Porter, deputy chief economist at BMO Nesbitt Burns.
Pushing the inflation rate up, the cost of fuel oil surged almost 30 per cent over the past year, with the biggest increases seen east of Ontario.
Also, homeowners' replacement costs were up 4.8 per cent from a year ago.
But these increases were offset by a 7.1 per cent slide in prices to buy and lease vehicles. The prices were driven lower because car dealers were offering more incentives, and because manufacturers' were suggesting lower retail prices than a year ago, Statscan said.
Computer equipment also got cheaper, declining 14.9 per cent in March compared to a year ago.
Economists noted that the January cut in the Goods and Services Tax makes total inflation look lower than it really is, but even accounting for the tax cut, total inflation is still well below the central bank's 2 per cent target.
“Overall, we believe that today's inflation report all but puts the nail in the coffin for a 50 basis-point rate cut from the Bank of Canada next week, since inflation is clearly not a concern in Canada,” said Jacqui Douglas, economic strategist at TD Securities.
The central bank is to make its next rate announcement next Tuesday, April 22, and has signalled that with inflation benign and the U.S. economy dealing with recessionary conditions, interest rates in Canada will come down. Economists have been divided over whether the central bank will cut by 25 basis points (the traditional size of a rate cut) or a more aggressive 50 basis points.
Thursday's inflation numbers seem to have pushed most economists into the 50-basis-point camp. A basis point is one one-hundredth of a percentage point.