Inflation at 2011 Levels ?

We found out that Inflation is now at 2011 Levels, at 3.0% on a year-over-year basis. So what? Remember the Bank of Canada’s ideal rate is 2.0%, so this will most likely reinforce another Bank of Canada rate increase (in October). Now the B of C’s calculated Inflation is only 2.0% , but I don’t think they can ignore this kind of jump.

I haven’t commented on inflation for a while, but this report is important, for a lot of reasons. With the tariff wars that are going on, inflation is going to continue to rise (IMHO), and that will mean higher interest rates. Maybe someone will find sense and stop this Testosterone Laced bullsh*t trade war, but I doubt it.

Note also that Interest rates going up, contribute to Inflation (see the table below). Interesting spiralling effect. Stats Canada used to put out a more detailed report, but they have discontinued that report.

Biggest Inflation Contributors Over Past Year

July 2017 to July 2018
% change
Main contributors to the 12-month change
Main upward contributors
Gasoline 25.4
Air transportation 28.2
Food purchased from restaurants 4.4
Mortgage interest cost 5.2
Purchase of passenger vehicles 2.0
Main downward contributors
Telephone services -5.1
Traveller accommodation -4.1
Natural gas -5.7
Digital computing equipment and devices -3.5
Prescribed medicines -2.8

Consumer Price Index Increases by Category

CPI by Category

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Loose Money Continues for the Holiday Season in Canada

The Bank of Canada yesterday announced that it is keeping its target for the overnight rate at 1 per cent. The Bank Rate is correspondingly 1 1/4 per cent and the deposit rate is 3/4 per cent, as well, which should mean that the Big Banks should not be changing their rates (but then again, they are free to do as they please).

$50 notes/Coupures de 50 $

Big Pile of Loose Canadian Money

This means that loose money rates at the Banks should continue on for a while. The Bank’s commentaries were telling as usual:

Inflation has evolved broadly in line with the outlook in the October MPR. Both total and core inflation are expected to increase and return to 2 per cent over the course of the next 12 months as the economy gradually absorbs the current small degree of slack, the growth of labour compensation remains moderate and inflation expectations stay well-anchored.

That is a sensible opinion, from my point of view. They do go on to say however:

Reflecting all of these factors, the Bank has decided to maintain the target for the overnight rate at 1 per cent. Over time, some modest withdrawal of monetary policy stimulus will likely be required, consistent with achieving the 2 per cent inflation target. The timing and degree of any such withdrawal will be weighed carefully against global and domestic developments, including the evolution of imbalances in the household sector.

In other words, we will be raising rates, some time, but we are not really sure when, but we will be watching closely to see if any kind of economic recovery heats the economy up.

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Rates Still at 1% Overnight Rate for Bank of Canada, September 2012

The Bank of Canada decided to keep their key overnight rate 1%, blah, blah, blah… you know the drill.

Things really don’t seem to be changing much this past little while do they?

Why are the rates staying the same? Here are some very good quotes from yesterday’s publication from the Bank of Canada:

“… The economic expansion in the United States continues at a gradual pace. Europe is in recession and its crisis, while contained, remains acute. In China and other major emerging economies, growth is decelerating somewhat more quickly than expected…”

OK, so the major markets of the world are not in very good shape, thus the danger of a massive spending spree (other than in China, where spending is slowing down), is not high.

“…In Canada, while global headwinds continue to restrain economic activity, underlying momentum remains at a pace roughly in line with the economy’s production potential. Economic growth is expected to pick up through 2013, with consumption and business investment continuing to be its principal drivers, reflecting very stimulative financial conditions. Business investment remains solid. There are tentative signs of slowing in household spending, although the household debt burden continues to rise….”

Global headwinds? I really love that turn of phrase, but more interestingly is the increase in household debt burden is now being spoken about by the central bank? Must be pretty bad, I guess?

Does this mean rates are going to stay down for now? I think so, but if there is an actual economic up turn in North America, all bets may be off.

Bank Rate (overnight) Since 2002, Pretty Low eh? And the Beat Goes On….

The graph stops at May, however, it is still the same as it was then, so you get the gist of things.


CPI Drops in May 2012 in Canada? WTH?!?

Friday Stats Canada put out some interesting numbers for their Consumer Price Index report for May (and the year ending in May). It was a big drop (well a drop in the rate of increase, so it’s kind of confusing), but it only rose 1.2% (year over year ending in May) and that is due to gas price increases subsiding:

Consumer prices rose 1.2% in the 12 months to May, following a 2.0% increase in April. This 0.8 percentage point difference was mostly attributable to declines for gasoline prices. Decreases in clothing prices as well as slower price gains for the purchase of passenger vehicles were also factors.

Canada continues to be at the mercy of the price of gasoline, which is also the reason the Canadian economy is so strong (an interesting dichotomy). The Canadian dollar is strong thanks to Canada being resources rich (and tar sands in specific), yet gas prices continue to yo-yo causing inflationary jumps and drops. Maybe it’s time Canada wasn’t so reliant on Gas (I jest, since I am not some granola crunching green party member)? A more interesting paragraph followed this initial statement from Stats Canada:

The energy index fell 1.6% in the 12 months to May, its first year-over-year decline since October 2009. Natural gas prices (-16.6%) continued to post declines. Gasoline prices decreased 2.3%, after 22 months of year-over-year increases. In contrast, electricity prices continued to rise.

So electricity prices are going up and everything else is kind of going down? Given what I am seeing here in Ottawa, I agree with this statement, and think electricity prices are a little out of control (here in Ontario at least).

12 Month Change in the Energy Index

Quite the roller coaster ride, but will it continue or is this a short dip leading back to the rising prices of the past 2 years? A more interesting graphic is comparing the CPI for the last little while with and without Energy included in it:

The 12-month change in the CPI and the CPI excluding energy

So things are a little more “normal” without energy, however, energy does effect prices no matter how you slice it thanks to it’s price increases rippling through other prices (like produce and anything that has to be delivered using trucks and such).

Bank of Canada’s core index

The Bank of Canada’s core index rose 1.8% in the 12 months to May, following a 2.1% gain in April. Price gains for electricity, food purchased from restaurants and meat continued to be main contributors to the year-over-year increase in the core index.

On a monthly basis, the seasonally adjusted core index was unchanged in May, after rising 0.4% the previous month.

Interesting, so the Bank of Canada think inflation is still functioning inside of its “norms”. For this month a reprieve for Bank Rates, but what will this summer bring in terms of gasoline prices?

The Big Table

As per usual I include one of the Big Tables from Stats Canada, showing more detail on all the data:

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

Relative import May 2011 April 2012 May 2012 April
to May 2012
May 2011
to May 2012
% (2002=100) % change
All-items Consumer Price Index (CPI) 100.00 120.6 122.2 122.1 -0.1 1.2
Food 15.99 127.7 130.1 130.9 0.6 2.5
Shelter 27.49 125.2 126.6 126.7 0.1 1.2
Household operations, furnishings and equipment 11.55 110.4 112.6 112.8 0.2 2.2
Clothing and footwear 5.31 93.7 95.3 93.4 -2.0 -0.3
Transportation 20.60 128.9 131.3 129.9 -1.1 0.8
Health and personal care 4.95 117.2 118.9 118.8 -0.1 1.4
Recreation, education and reading 11.20 106.1 105.4 106.7 1.2 0.6
Alcoholic beverages and tobacco products 2.91 135.7 137.7 137.7 0.0 1.5
Special aggregates
Core CPI 82.15 117.8 119.7 119.9 0.2 1.8
All-items CPI excluding energy 89.92 117.3 119.1 119.3 0.2 1.7
Energy 10.08 160.2 161.0 157.7 -2.0 -1.6
Gasoline 5.80 190.5 192.9 186.1 -3.5 -2.3
All-items CPI excluding food and energy 73.93 115.0 116.6 116.7 0.1 1.5
Goods 47.80 114.4 115.3 114.7 -0.5 0.3
Services 52.20 126.7 129.1 129.5 0.3 2.2
1. 2009 CPI basket weights at April 2011 prices, Canada, effective May 2011. Detailed weights are available under the Documentation section of survey 2301 (
2. Figures may not add to 100% as a result of rounding.
3. The Bank of Canada’s core index excludes eight of the Consumer Price Index’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, please consult the Bank of Canada website (
4. The special aggregate “Energy” includes: electricity; natural gas; fuel oil and other fuels; gasoline; and fuel, parts and supplies for recreational vehicles.


Low Interest Rates to End 2011 from Bank of Canada

The Bank of Canada announced yesterday that they will be holding their key overnight rate at 1.0% for now and maybe for the foreseeable future.

Uncertainty around the global economic outlook has increased in the weeks since the Bank released its October Monetary Policy Report (MPR). Conditions in global financial markets have deteriorated as the sovereign debt crisis in Europe has deepened. Additional measures will be required to contain the European crisis. The recession in Europe is now expected to be more pronounced than the Bank had anticipated in October, as a result of increased deleveraging and tighter financial conditions, as well as necessary fiscal austerity and structural reforms.

The Bank will of course keep watching carefully to see if that raise rates some time in the future, or more correctly they will try to figure out if the Canadian economy could withstand higher interest rates (or worse when they have to raise the rates to combat the highly simmering Inflation Rate).

A quizzical comment in the document:

Although total CPI inflation has been slightly higher than projected, the Bank continues to expect the inflation rate to decline as a result of reduced pressures from food and energy prices and ongoing excess supply in the economy. Core inflation has also been slightly firmer than projected and is expected to ease as the output gap persists well into 2013.

They think inflation may stay under wraps, but I am not so sure.

Time to think about locking in your Mortgage rates? Maybe, if you don’t think you can withstand interest rates taking a sudden jump, then maybe it is time to lock in, me I will continue to stay with my floating rates (for now).


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