GAS, MORTGAGE COSTS SPARK INFLATION HIKE
The Vancouver Sun, May 21st, 2008
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
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.
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