Canadian Personal Finance Blog

Our friends at the Bank of Canada Tuesday continued to keep interest rates down, but again the media is thinking that this may not last much longer.

I believe that the following paragraph would be the one that has the pundits buzzing:

Reflecting all of these factors, the Bank has decided to maintain the target for the overnight rate at 1 per cent. In light of the reduced slack in the economy and firmer underlying inflation, some modest withdrawal of the present considerable monetary policy stimulus may become appropriate, consistent with achieving the 2 per cent inflation target over the medium term. The timing and degree of any such withdrawal will be weighed carefully against domestic and global economic developments.

Interesting bit of baffle-gab, but I would interpret “… withdrawal of the present considerable monetary policy stimulus…” as saying that low interest rates may not be sustainable in the near future, especially if they are starting to worry about inflation (and they think the economy can withstand higher interest rates).

The one thing that may cause inflation to explode (or moderate for that matter) will be gasoline prices. They have remained high here in Ottawa (in Montreal gas is hovering around $1.50 a litre), and if these continue to go up, this may be the trigger to bring interest rates up as well. Why are gas prices so high? Couldn’t be price-fixing, since we know that isn’t going on in the industry.

Going back to Wednesday’s Stupid Mortgage commentary, wonder what happens to the housing industry with interest rates at double what they are now? Is that a bubble popping noise I hear, maybe not, but it would be a large bucket of cold water thrown on that hot topic.

Bank of Canada Rate This Month

Will interest rates explode? Well, it won’t take much for the Bank of Canada rate to double, to 2.0%, but how will the Big Banks reflect that change? All very interesting questions that will be replied to in the next few months.

So the news continues to be neither good nor bad (ni bon ni mal?), as Inflation continues to chug along at 2.5% for the year ending in January 2012, whereas last month it was at 2.3%, so it is going back up. Stats Canada’s report shows a few nasty things to note:

Food prices rose 4.2% on a year-over-year basis in January following a 4.4% increase in December. In January, consumers paid 4.9% more for food purchased from stores and 2.8% more for food purchased from restaurants compared with January 2011.

The cost of energy advanced 6.5% in the 12 months to January, after rising 6.0% in December. Gasoline prices increased 6.8% in January. The electricity index rose 7.3%, with notable increases recorded in Alberta and Nova Scotia. Prices for fuel oil went up 17.1% while natural gas prices fell 0.7%.

OK, so that one really does worry me. All energy is going up in price and so is food, and frankly the rest of the index means little or nothing to me, so what I am reading is that the Real BCM Index is actually at 5.35%? This makes me (BCM) very unhappy. Living expenses should be part of the BCM index, but for now, it’s not that big a jump, but I am astounded that the media does not make more of a stink about the energy and food portion of things?

CPI for the past little while, with and without Food & Energy

The problem with this graphic is that it should include a Food and Energy ALONE line as well. If anyone from Stats Canada is reading, please add THAT line to get across the point that Food and Energy are spiraling up in a very nasty way.

Bank of Canada’s core index

The folks at the Bank of Canada have their own way of looking at the index, so here is their view on things:

The Bank of Canada’s core index rose 2.1% in the 12 months to January, after increasing 1.9% in December. Notable increases were recorded for electricity, food purchased from restaurants and homeowners’ replacement costs.

The seasonally adjusted monthly core index rose 0.3% in January after falling 0.1% in December.

The good news is this is within their “I don’t like it, but we won’t do anything” range, but it is starting to get into the “we are annoyed and will do something” range too.

The Big Table

My favorite parts of these posts are the HUGE Table that Stats Canada includes with the monthly post.

Consumer Price Index and major components, Canada - Not seasonally adjusted

Year over year 2012′s Consumer Price Index ended at 2.3% according to our friends at Stats Canada. The drop from last month’s 2.9% is being attributed to gas prices moderating (i.e. not increasing as fast, and in some instances almost dropping a smidge), and car prices dropping a little.

This is not to say that Gas prices are really dropping, but that the increase compared to last year at this time doesn’t seem quite as bad. The actual rise of gas prices year over year was about 7.6% as compared to last month where the year over year where gas was effectively up 13.5%, so it looks like the gas price increase is declining (but not the price really).

Other words from Stat Canada:

Consumers paid 4.4% more for food in the 12 months to December, following a 4.8% increase the month before. The year-over-year change for food purchased from stores eased in December to a 5.0% gain from 5.7% in November.

Bouncy, bouncy graph

Even though the CPI is moderating the bad news is that prices are up in every major category on the Index. Everything ends up costing more year over year, is never a good thing to read.

Since 2002, you can see how inflation has chewed away the actual value of a Canadian Dollar, and this period has been low, what happens if inflation suddenly heats up?

Bank of Canada’ Core Index

What the Bank of Canada thinks the inflation rate runs at is even more important, because they are the only one who has a brake for the economy (i.e. Money supply rules and Interest Rates), and luckily they think it is actually a little lower than their target which is around 2.0%, using their index. This means interest rates won’t jump due to inflation for this month.

The Bank of Canada’s core index rose 1.9% in the 12 months to December, after increasing 2.1% in November. Increases were recorded for food purchased from restaurants and passenger vehicle insurance premiums, while prices for the purchase of passenger vehicles declined.

The seasonally adjusted monthly core index posted no change in December.

The BIG Table

Where were the biggest jumps in the CPI? Always check out the Stats Canada web pages for more details, but I always love publishing one of their BIG tables too.

Table 1 Consumer Price Index and major components, Canada - Not seasonally adjusted

Our friends at Stats Canada published the November CPI numbers for Canada yesterday and the good news is that the rate of growth has not changed from October, however it is still relatively high at 2.9%. This increase is in spite of Gasoline prices moderating, and is caused mostly by food price increases (which hurts everyone).

Consumer prices rose 2.9% in the 12 months to November, matching the increase in October. While the 12-month change in gasoline prices continued to ease, the year-over-year increase in food prices remained high.

It seems like Gas and Food take turns on who(m) will be the key element to keep driving inflation, but food prices are most certainly up in the Ottawa area, whereas gasoline has been dropping slowly in price (although I do fully expect a Christmas spike in the next few days).

Gas Price Changes

As you can see Gas prices are moderating (somewhat), but then again, while the price is moderating, it isn’t really dropping by that much either. I guess those folks who bought Hybrids 2 years ago are chuckling to themselves.

CPI With and Without Food

More interesting is seeing CPI not including food, which makes the whole CPI thing a non-issue (in my opinion). Food prices jumping hurts everyone, especially lower income folks or fixed income folks.

Erosion of your Spending Dollar

This graph is really telling, because it shows the erosion of the value of your earned dollars compared to inflation, not the steepness of the curve lately? Never a good thing.

Bank of Canada’s core index

The Bank of Canada’s core index, which excludes eight of the Consumer Price Index’s most volatile components as well as the effects of changes in indirect taxes on the remaining components, rose 2.1% in the 12 months to November. This matched the rise posted in October. Increases were recorded for passenger vehicle insurance premiums, meat and bakery products.

This is better news for interest rates, but inflation does continue it’s slow methodical upward push, and when will higher interest rates be coming? I have no idea any more.

The Big Table

For my regular readers here is my favorite part of the Stats Canada report, the Big Table which shows each part of the index, enjoy it and look closely!

Consumer Price Index and major components, Canada - Not seasonally adjusted

Inflation continues to rumble along, but it’s rate has slowed a little (year over year) from last month dropping from 3.2% from last month to 2.9% this month. This is better news, but still a fairly high number, and a real catalyst for more economic fun and games if it continues at the current rate.

Energy prices increased 11.7% during the 12 months to October, easing from the 12.5% gain in September. On a year-over-year basis, gasoline prices rose 18.2%, after advancing 22.7% in September. Prices for fuel oil increased 22.1% in October, following a 27.4% rise the month before. Prices for electricity rose while prices for natural gas continued to decline.

We continue to be at the mercy of spiralling energy prices, and its domino effect on other areas, and we see that food continues to increase at about a 4.0% rate (year over year), which is bad too.

CPI for the Past Little While

Without energy and food CPI is running at 1.5%, but in my opinion those two are the two key parts of the entire Index. Gas prices are actually stabilizing (in Ottawa at least), but I suspect as the Christmas season looms on the horizon more pricing shenanigans may start-up again.

Gasoline Price Index for the Past 12 Months

Bank of Canada’s Core Index

Seeing as the B of C is kind enough to keep their own version of CPI we should acknowledge it:

The Bank of Canada’s core index rose 2.1% in the 12 months to October, following a 2.2% gain in September. Increases were recorded for food purchased from restaurants, passenger vehicle insurance premiums and for the purchase of passenger vehicles.

The seasonally adjusted monthly core index increased 0.2% in October, after rising 0.3% in September.

This rate being only at 2.1% means the Bank won’t be as worried about raising interest rates (yet).

The Big Table

You can find this version of the big table here, but I include it for your reading pleasure.

Consumer Price Index and major components, Canada - Not seasonally adjusted