Friday our friends at Stats Canada published their monthly Consumer Price Index report and to very few folks surprise, Inflation continues to rise and last month (May 2014) the year ending Inflation rate rose to 2.3 % thanks to Gasoline, Natural Gas and Electricity rates jumping in price across Canada.
At first blush 2.3% doesn’t sound that scary, given we have lived through worse, but the Government and Bank of Canada have both stated publicly that the trigger CPI rate for them to start looking at raising interest rates is 2.0% and we are now over that. Will Inflation continue its upward rise? Not sure, but we’ll have to watch closely.
As you can see Energy may well be the spark to push Interest Rates higher. Stats Canada gives you the grim numbers to explain this:
Prices for gasoline increased 6.3% in the 12 months to May, while natural gas prices advanced 21.3%. Electricity prices rose 7.0% year over year in May, following a 4.6% rise in April. The faster rise in the electricity index was led by a gain in Alberta. At the national level, consumers also paid 12.7% more for fuel oil in May.
All the gas price increases are being explained as problems in the Middle East, as for Natural Gas evidently we used too much? In Ontario we already knew that we were going to pay a lot more for Electricity, and now we have given the Liberals a vote of confidence on this gouging, so things aren’t going to get cheaper.
It is also sad that the typical sin commodities like smokes and booze are going up quickly as well, so we can’t even commiserate over a drink.
This graph always worries me and the fact that the slope keeps increasing is not good either.
Bank of Canada’s core index
The Bank of Canada’s core index rose 1.7% in the 12 months to May, after increasing 1.4% in April. Meat, traveller accommodation and electricity were notable contributors to the faster rise in May compared with April.
This is the important one to look at in terms of Interest Rates and such, and even the Bank of Canada’s rate is starting to enter the “we better do something about this” zone. Currently the monetary policy would be viewed as “Over stimulating” the economy, however, inflation will trigger a need to change the policy to a less stimulating configuration.
The Big Price Table
Here we can see the exact culprits for the Inflation jump.
|Relative importance1||May 2013||April 2014||May 2014||April to May 2014||May 2013 to May 2014|
Price Index (CPI)
|Household operations, furnishings
|Clothing and footwear||5.82||93.9||95.0||94.5||-0.5||0.6|
|Health and personal care||4.93||118.3||118.9||119.2||0.3||0.8|
|Alcoholic beverages and tobacco products||2.79||141.1||145.1||146.2||0.8||3.6|
|All-items CPI excluding energy||91.44||120.1||121.6||122.1||0.4||1.7|
|All-items CPI excluding food