Canadian inflation stays firm at 0.8 per cent in December
Canadian dollars (loonies) are pictured in Vancouver, B.C. file photo. (The Canadian Press/Jonathan Hayward)
Julian Beltrame, The Canadian Press
Published Friday, January 25, 2013 8:12AM PST
Canada's inflation remained barely visible for the second consecutive month in December, as consumers enjoyed one of the best years in terms of purchasing power since the recession, Statistics Canada said Friday.
The annual inflation rate remained 0.8 per cent in December, capping off a year in which price increases have been largely constrained by a weakened global economy.
On a month-to-month basis, Canadain prices fell outright by 0.6 per cent from November, as retailers also dropped sticker prices on clothes and footwear in an effort to attract Christmas shoppers.
"Today's inflation numbers were well-below what markets and the Bank of Canada were expecting - in short, inflation simply is not an issue in Canada, at least not at the moment," TD economist Francis Fong wrote in a research note.
"That being said, the end of 2012 was certainly a cyclical low with regards to economic growth and things are expected to heat up from here."
November and December saw lower prices on a wide range of goods and services helping bring the annual inflation rate in Canada to an average of 1.5 per cent, about half the rate of the previous year and the lowest level since 2009, when the economy was still hobbled by recession.
"The slower increase in the CPI (consumer price index) in 2012 compared to 2011 was largely attributable to smaller price increases in gasoline and food," the agency said.
Pump prices rose 2.5 per cent last year compared to 20 per cent in 2012, and food price hikes averaged 2.4 per cent, compared to 3.7 per cent in 2011. Analysts had predicted the summer drought in the U.S. would eventually push food prices higher, but the flow through has yet to materialize in North American in any significant way.
Earlier in the week the Bank of Canada, which prefers inflation to be around two per cent, cited tame prices and expectations of more of the same as a factor in keeping borrowing costs at super-low levels for a while -- likely up to a year -- longer.
The Canadian dollar was down 0.44 of a cent to 99.14 cents US, its lowest level since late July on Friday morning, after closing the previous day below parity with the American currency for the first time since mid-November.
The low consumer price increases add to selling pressure on the currency because they suggest the Bank of Canada has no need to raise interest rates to remain within its target range of between one and three per cent inflation.
The central bank said Wednesday it now expects inflation to average around one per cent for the next several months and not to return to its target level until the second half of 2014.
But for the second month in a row, there were few areas of price pressures to be found in December and on some major items -- gasoline, automobiles and clothing -- there were outright declines from the previous month.
Gasoline prices were 2.4 per cent lower last month than they were in November, passenger vehicles cost 1.2 per cent less on average and clothing dropped 4.4 per cent. Hotel rates and mortgage interest costs also fell month-to-month.
On a year-to-year comparison, mortgage costs, autos, video equipment, fresh vegetables and natural gas all dropped.
The main positive contributors to inflation in December were food, which rose 1.5 per cent, and alcohol and tobacco products, which rose 1.8 per cent. Individually, cable and satellite services rose 5.9 per cent, meat prices increased 4.4 per cent and prices for household operations, furnishings and equipment were up 1.3 per cent.
Regionally, prices rose in all provinces, but the highest-- Nova Scotia at 1.8 per cent -- was still below the Bank of Canada's target rate of two per cent.