What's New
Consumer Prices Rise 3.5% On Food, Gas
By Jamie Sturgeon
September 23, 2008 (Financial Post) — Higher energy and food costs again pushed consumer prices to another multi-year high, as prices rose 3.5% in August from the same time last year, Statistics Canada reported on Tuesday.
The 12-month increase in the consumer price index was the largest since March of 2003, as gasoline continued to take a greater bite out of Canadian incomes despite a fall in fuel prices.
Gasoline declined 6.6% from July to August as expected, actually leading to an unadjusted month-to-month fall of 0.2% in headline consumer prices.
Still, August gas prices increased over 26% from last year, the federal agency said, while energy costs in total including natural gas and other fuel products, accounted for "about half" of the entire increase. Excluding energy, consumer prices rose 1.8%, StatsCan said.
August's rise follows a 3.4% annualized hike in July as the price of oil hit US$140 a barrel and food prices continued to tick higher.
"It's slightly higher than expected," said Craig Wright, chief economist of Royal Bank. "Headline was right on expectations ... The core measure moved up a notch ... so a bit of a setback there but nothing to be too worried about right now."
An energy and food-led rise in consumer prices is anticipated to persist through the fall before deflationary pressure from a slowing global economy takes effect, according to Douglas Porter, deputy chief economist at BMO Capital Markets.
"Don't look for any quick retreat in Canadian headline inflation in the next few months. Amid all the day-to-day swings, it looks like gasoline prices are actually set to rise on average for September," he said in a morning commentary.
Rising prices in staple grains again led to greater pressure on consumers' pocketbooks in August, as food costs increased 4.5% from a year ago.
"Driven by price increases for grain and bakery products, prices for food purchased from stores also contributed significantly to the change in the 12-month CPI in August," StatsCan said.
Core inflation, which strips out more volatile items like food and gas prices, rose a higher-than-expected 1.7% from a year ago. The core index, considered by economists to be a more stable measure of consumer prices, is the metric used by the Bank of Canada to determine monetary policy. Core inflation is now moving faster than the 1.5% goal set by the central bank.
The headline inflation figure for August was in line with expectations, helped by dampening auto prices which fell 7.4% from August 2007.
With the near-certain prospect that economic activity is slowing, if not grinding to a halt, inflation is expected take a back seat to other economic concerns.
"If everything else was normal, the Bank of Canada might well be worried by a slight upward tick in the core measure, but everything else is far from normal," Craig Wright of Royal Bank said. "On the long list of things they're worried about right now, I don't think the slight uptick in core CPI is one of the key components."
"I think the near-term considerations for the bank and everyone is to have some sort of semblance of stability to return to the financial markets and assuming we get that we can look back at what to do on risks on inflation and growth."
Mr. Porter of BMO said headline inflation would likely recede below 3% by the end of the year, "thanks to lower energy prices and tamer home prices," he said. "But the ride could be bumpy."
By region, Atlantic Canada saw prices rise the most, while Ontario and Quebec remained around the national average. Prices in Western Canada came in slightly higher.
