David Valente Real Estate, North Vancouver, West Vancouver, Downtown Vancouver

The Vancouver Sun, May 21st, 2008
Canada's inflation rates rose unexpectedly to 1.7 per cent in April - the first increase in six months - due to higher gasoline and mortgage costs, Statistics Canada said Wednesday.

Many economists had expected an inflation rate of between 1.2 per cent and 1.6 per cent in April, following a year-on-year gain of 1.4 per cent in March.

The surprise jump in the consumer price index sent the Canadian dollar higher, with some analysts predicting the Bank of Canada could forgo further cuts in interest rates to keep inflation under control.

"The main upward pressure on the all-items index and its acceleration came from gasoline prices," the federal agency said, pointing to a 11.6 per cent jump in gas prices between April 2007 and April 2008. Without the impact of gas prices, inflation would have risen only 1.4 per cent last month.

"The reduction of incentives offered by car manufacturers also contributed to the acceleration of the all-items index," it said.

Statistics Canada said another contributor to inflation in April was higher mortgage interest cost. "Again in April, new housing prices exerted more upward pressure on this index than mortgage interest rates," it said.

The core inflation rate - which strips out volatile items such as energy costs and is used by the Bank of Canada to gauge inflation - rose to 1.5 per cent in April, up from 1.3 per cent the previous month.

The last time inflation accelerated was in November 2007.

Ontario had the slowest rate of inflation in April, with its all-items index rising 1.3 per cent, while Alberta and Saskatchewan both posted a 3.2 per cent gain - mainly due to higher new housing costs.

Despite the jump in prices, inflation remains below the Bank of Canada's core target of two per cent.

"While Canada is faring better than most other countries, it appears that the shelter provided by the loonie from surging global commodity prices may be fading," said Michael Gregory, an economist at BMO Capital Markets.

"The door remains open, even if slightly less so, for another Bank of Canada rate cut at its next meeting in June, but rising inflation pressures cast doubt on future moves."

Jacqui Douglas, economics strategist at TD Securities, said the inflation report "was certainly a shocker."

"However, we do still think that the Bank of Canada will ultimately cut rates further than the markets are expecting by the end of the year, since we believe that their economic growth forecast for the end of 2008 and beginning of 2009 is a little too strong, and that growth will not pick up quite as fast as they're expecting."

Statistics Canada said prices for some food items have increased in April. Bakery products, for example, surged 10.4 per cent.

Even so, grocery prices remain relatively stable. Prices for food purchased from stores went up by only 0.9 per cent last month, a slower pace than the all-items index.

In fact, the price of fresh vegetables actually dropped. At this time last year, vegetable prices were higher due to a frost in California. The loonie's higher buying power has also reduced prices for U.S.-grown produce.

"However, with a 0.8 per cent jump in April (from March), food inflation may have finally come to roost in Canada, although we would need to see this trend continue over several more months before we could say that for sure," wrote Derek Holt and Karen Cordes of Scotia Economics in a morning note.

The Canadian dollar rose after Wednesday's inflation report, trading above $1.01 US after closing Tuesday at $1.0083 US.

Major components (percentage change April to April):

All-items index +1.7

Core index +1.5

Food +1.2

Shelter +4.3

Household operations and furnishings +1.1

Clothing and footwear -3.5

Transportation +1.3

Health and personal care +1.4

Recreation, education and reading +0.7

Alcoholic beverages and tobacco products +1.8

Goods 0.0

Services +3.3

All-items excluding food and energy +1.1

Energy +8

Provinces/territories (percentage change April to April):

Newfoundland and Labrador 2.3

Prince Edward Island 2.6

Nova Scotia 2.7

New Brunswick 1.4

Quebec 1.6

Ontario 1.3

Manitoba 1.6

Saskatchewan 3.2

Alberta 3.2

British Columbia 1.7

Whitehorse 2.9

Yellowknife2 4.1

Iqaluit 1.2

Source: Statistics Canada

With files from the Financial Post