17 April 2009

Pace of inflation slows in March

The following is excerpted from today's "globeandmail.com".

Consumer prices in Canada rose just 1.2 per cent in March compared to a year earlier, with rising food costs offset by cheaper gas and cars, Statistics Canada says.

That's slower than the 1.4 per cent inflation in February and was slightly lower than economists' expectations for 1.4 per cent again in March.

Core inflation, which excludes the most volatile prices such as energy and good, rose 2.0 per cent – very close to economists' forecasts and bang on the Bank of Canada's inflation target.

On a monthly basis, inflation was considerably slower in March than a month earlier. After a 0.7 pop-up in consumer prices in February, the March monthly increase was 0.2 per cent for consumer prices as a whole, and 0.3 per cent for core inflation, not seasonally adjusted.

But on a seasonally adjusted basis, prices actually fell, compared to a month earlier. The consumer price index dropped 0.3 per cent from February to March, after rising 0.4 per cent the previous month. (Statscan considers the seasonally adjusted consumer price index as the best indicator of month-to-month consumer price momentum).

The drop was mainly due to a 0.5 per cent decline in costs to carry a house, but was partly offset by higher prices for food.

Indeed, food prices, on an annual basis, soared 7.9 per cent in March, the largest just since November 1986. It comes on the heels of a 7.4 per cent increase in February.

The main culprit was potatoes – which were an astounding 54.9 per cent more expensive than a year earlier, as a result of poor Canadian harvests– but Statscan said the food price increases were widely spread. Fresh vegetables and fruit, non-alcoholic drinks and cereal products all rose in doubt digits. Meat, bakery products and chicken were also more expensive.

But fuel continued to be much cheaper than the sky-high prices of a year ago, down 32.9 per cent – the fourth consecutive year-over-year decline. Gasoline was 21 per cent cheaper in March, after a 19.7 per cent drop in February – even though on the month it was 2.0 per cent more expensive.

Despite the increase in food prices, economists said inflation in Canada is so low that it is of little concern.

“Inflation remains tame in Canada and will likely retreat further over the next few months, as building economic slack keeps wage growth tame and limits the ability of producers to pass along price increases,” said Benjamin Reitzes, economist at BMO Nesbitt Burns....

Regionally, March inflation slowed in all provinces except Ontario and Quebec, Statscan said. In Ontario, consumer prices rose a benign 1.8 per cent – more than the 1.5 per cent annual increase measured for February – mainly because of rising car insurance premiums. Quebec's inflation was flat compared to a month earlier, at 0.8 per cent.

In Alberta, inflation was a rock-bottom 0.9 per cent in March – a stark turnaround from the overheated economy of a year ago that used to consistently post inflation rates well above the national average. The March pace of inflation was much slower than the 2.1 per cent seen in February, mainly because of a decline in natural gas prices.

Economists argued that the soft inflation numbers leaves the Bank of Canada with room for yet another interest rate cut next week, even though the central bank's rate is at its lowest point ever....