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Inflation turning into non-story in Canada as prices stabilize near 1%


 

OTTAWA – Canadian consumers can expect to see only moderate if any price increases across the broad spectrum of goods and services in the foreseeable future, analysts said Friday after release of new data showing inflation fell to one per cent last month.

Friday’s fresh data from Statistics Canada trimmed the annual inflation rate two-tenths of a point to one per cent, and pegged the month-to-month rise in prices at a tame 0.2 per cent.

That follows a wild February which saw the annual rate climb 0.7 points and prices jump 1.2 per cent in one month.

But that was an aberration caused by a sharp rise in gasoline prices. Gas prices reversed course in March and have fallen further still so far into April, pointing to an even lower rate when the numbers come out next month.

“Canadian inflation is showing its true colours again — bland,” said Bank of Montreal chief economist Doug Porter.

“Prices in almost all regions and almost all categories are currently running at well below a two per cent annual pace, and the near-term outlook is lower. We remain in a world where both growth and inflation are scrambling to stay above one per cent.”

Porter noted that there is nothing on the horizon that appears ready to upset the apple cart. Political tensions have not as yet led to a spike in energy prices and even last month’s severe drought in the United States has had little impact on food prices, despite predictions they could rise to about five per cent this spring.

TD Bank economist Francis Fong called the lack of inflationary pressure par for the course given the anemic Canadian economy, which grew at less than one per cent in the last six months of 2012 and appears to have picked up only modestly so far into 2013.

Fong said he expects inflation to remain in the slow lane for some time, but not to veer into deflationary territory, which would concern the Bank of Canada. As it stands, the current environment suggests the central bank could remain on a holding pattern in terms of interest rates for the next year or two.

“We do not expect the first hike in the overnight rate to occur until the end of next year,” he said.

In Tuesday’s update on the economy, the Bank of Canada said the weak price pressures are consistent with excess production capacity in the economy, meaning producers have little leverage to push for higher returns.

It also cited the increased presence of big box stores in Canada, including the recent arrival of U.S. giant Target, as well as growth in online and cross-border shopping.

It predicted inflation would remain near one per cent through much of 2013 and only return to the bank’s preferred two per cent target in mid-2015.

The key contributor to March’s lower rate was a 0.3 per cent decline in the price of gasoline from a year ago, following February’s 3.9 per cent increase. Statistics Canada said gasoline prices declined in seven of the 10 provinces.

Overall, six of the eight major components that go into the inflation rate rose, but all by less than two per cent. As a result, core inflation, which excludes volatile items such as gasoline and fresh fruit, also remained in check, staying unchanged at 1.4 per cent.

On individual items, there were some more pronounced movements, both up and down, including fresh fruit and vegetables. In addition, tuition fees were up 3.7 per cent on an annual basis, and property taxes rose 2.8 per cent.

Significant downward movements included a four per cent dip in mortgage interest costs, a 9.6 per cent drop for video equipment, a 3.7 per cent slide in air transportation and a 3.6 per cent decline in non-alcoholic beverages. Travel tours were also less expensive, down 4.8 per cent.

On a monthly basis, prices increased by 0.2 per cent from February to March as gas rose slightly, while clothing and footwear increased by 4.3 per cent, mostly due to seasonal factors.

Regionally, the inflation rate was highest in Manitoba at 2.3 per cent and lowest in British Columbia, at 0.5 per cent.


 
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