Annual inflation rises back to more normal levels: 1.2 per cent in June
Julian Beltrame, The Canadian Press
Published Friday, July 19, 2013 8:37AM EDT
Last Updated Friday, July 19, 2013 11:45AM EDT
OTTAWA -- Canada's inflation rate moved toward more normal levels last month, as rising gas and auto prices pushed the index up into the Bank of Canada's desired range of one to three per cent for the first time since February.
The half-point rise to 1.2 per cent annualized growth in average consumer prices was the second consecutive increase in the index after reaching a post-recession low of 0.4 per cent in April.
Overall, consumer prices were higher in six of the eight major components tracked by Statistics Canada. The exceptions were health and personal care costs, and recreation, education and reading.
Bank of Montreal chief economist said Doug Porter the updraft from extremely low inflation levels is welcome -- and although he expects the index to climb further this year -- he added that he expects price pressures to remain muted this year and next.
"We are likely going to get further upward pressure from gasoline prices, but more subtlely, with the Canadian dollar softening a bit, that takes a bit of the pressure off retailers," he noted. "But in terms of average inflation this year, we're still looking at something below two per cent this year ... and frankly we don't see it averaging two per cent next year either."
With both the Canadian and global economies sluggish, it would be difficult for producers and retailers to enforce price increases, Porter explained. As well, labour costs remain muted.
In this week's economic update, the Bank of Canada cited the considerable slack in the Canadian economy, heightened competition in the retail sector and to a lesser extent, restraints on regulated prices such as car insurance rates in Ontario, for the weak inflation landscape.
The bank said it did not expect core inflation, the measure of underlying price pressures, to get back to the two per cent target until mid-2015, coinciding with the date the bank expects the economy to return to full capacity.
In the report Friday, core inflation rose by 0.2 points to 1.3 per cent.
"(The soft inflation) backdrop will enable to the Bank of Canada to stay its hand on the overnight rate until the end of 2014," predicted TD Bank economist Sonya Gulati
"At that point, gradual, measured and incremental increases to the rate are expected," she added.
The major contributors in June were a 4.6 per cent increase in gasoline prices at the pump, and a two per cent hike in the cost of purchasing a new motor vehicle, which Statistics Canada attributed to smaller monthly price declines compared to June 2012.
On a month-to-month basis, gasoline was 2.8 per cent higher than it was in May.
More modest increases were recorded in food prices, up 1.2 per cent from a year ago, and shelter costs, also up 1.2 per cent.
On individual items, natural gas jumped 11.3 per cent, rent was up 1.7 per cent and property taxes were 2.8 per cent higher.
The Bank of Canada's core inflation index -- which excludes certain items that tend to swing wildly -- moved up a more modest 0.2 percentage points to 1.3.
But there were also plenty of items that saw prices continuing to weaken. Mortgage interest costs fell 3.8 per cent, the price for video equipment dipped 9.2 per cent, digital computing equipment decreased 4.3 per cent, prescription medicines slipped 4.1 per cent, and travel tours slowed by 4.8 per cent.
On a month-to-month basis, clothing, footwear and dairy products were lower, while gasoline, furniture, fresh vegetables and air transportation saw modest increases.
Regionally, prices were higher in all provinces except British Columbia, which recorded its third consecutive month of disinflation, chiefly attributed to a one-per-cent decrease in food costs. The withdrawal of the harmonized sales tax in April is also exerting a downward draft on consumer prices in the province.
Manitoba saw the biggest jump in inflation, rising almost a full point to 2.7 per cent as gasoline prices rose 10.7 per cent.
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