Who said Inflation ? CPI Up in Canada

in Bank of Canada, Inflation, Stats Canada

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.

The 12-month change in the Consumer Price Index (CPI) and the CPI excluding energy

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.

Seasonally adjusted monthly Consumer Price Index
Seasonally adjusted monthly Consumer Price Index

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.

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

Relative importance1 May 2013 April 2014 May 2014 April to May 2014 May 2013 to May 2014
% (2002=100) % change
All-items Consumer
Price Index (CPI)
100.002 123.0 125.2 125.8 0.5 2.3
Food 16.60 132.6 134.6 135.7 0.8 2.3
Shelter 26.26 128.3 132.4 132.6 0.2 3.4
Household operations, furnishings
and equipment
12.66 114.0 115.5 115.8 0.3 1.6
Clothing and footwear 5.82 93.9 95.0 94.5 -0.5 0.6
Transportation 19.98 129.2 132.2 132.7 0.4 2.7
Health and personal care 4.93 118.3 118.9 119.2 0.3 0.8
Recreation, education
and reading
10.96 106.5 106.2 107.8 1.5 1.2
Alcoholic beverages and tobacco products 2.79 141.1 145.1 146.2 0.8 3.6
Special aggregates
Core CPI3 84.91 121.2 122.7 123.3 0.5 1.7
All-items CPI excluding energy 91.44 120.1 121.6 122.1 0.4 1.7
Energy4 8.56 159.3 171.2 172.7 0.9 8.4
Gasoline 4.62 183.3 193.2 194.8 0.8 6.3
All-items CPI excluding food
and energy
74.85 117.3 118.8 119.1 0.3 1.5
Goods 48.18 115.0 117.5 117.9 0.3 2.5
Services 51.82 130.9 132.9 133.6 0.5 2.1
1. 2011 CPI basket weights at January 2013 prices, Canada, effective February 2013. Detailed weights are available under the Documentation section of survey 2301 (www.statcan.gc.ca/imdb-bmdi/2301-eng.htm).
2. Figures may not add up to 100% as a result of rounding.
3. The Bank of Canada’s core index excludes eight of the CPI’s most volatile components (fruit, fruit preparations and nuts; vegetables and vegetable preparations; mortgage interest cost; natural gas; fuel oil and other fuels; gasoline; inter-city transportation; and tobacco products and smokers’ supplies) as well as the effects of changes in indirect taxes on the remaining components. For additional information on the core CPI, consult the Bank of Canada website (www.bankofcanada.ca/rates/indicators/key-variables/inflation-control-target/).
4. The special aggregate “Energy” includes: electricity; natural gas; fuel oil and other fuels; gasoline; and fuel, parts and supplies for recreational vehicles.

{ 1 comment }

  • debt debs June 23, 2014, 8:15 PM

    I want those interest rates to stay down until Oct when I can renew my mortgage 6 months in advance of renewal date. Trying to figure out if we should go variable or fixed with 4 years to go.

    Reply

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