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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 importMay 2011April 2012May 2012April
to May 2012
May 2011
to May 2012
%(2002=100)% change
All-items Consumer Price Index (CPI)100.00120.6122.2122.1-0.11.2
Food15.99127.7130.1130.90.62.5
Shelter27.49125.2126.6126.70.11.2
Household operations, furnishings and equipment11.55110.4112.6112.80.22.2
Clothing and footwear5.3193.795.393.4-2.0-0.3
Transportation20.60128.9131.3129.9-1.10.8
Health and personal care4.95117.2118.9118.8-0.11.4
Recreation, education and reading11.20106.1105.4106.71.20.6
Alcoholic beverages and tobacco products2.91135.7137.7137.70.01.5
Special aggregates
Core CPI82.15117.8119.7119.90.21.8
All-items CPI excluding energy89.92117.3119.1119.30.21.7
Energy10.08160.2161.0157.7-2.0-1.6
Gasoline5.80190.5192.9186.1-3.5-2.3
All-items CPI excluding food and energy73.93115.0116.6116.70.11.5
Goods47.80114.4115.3114.7-0.50.3
Services52.20126.7129.1129.50.32.2
1. 2009 CPI basket weights at April 2011 prices, Canada, effective May 2011. Detailed weights are available under the Documentation section of survey 2301 (www.statcan.gc.ca/imdb-bmdi/index-eng.htm).
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 (www.bankofcanada.ca/rates/price-indexes/cpi).
4. The special aggregate “Energy” includes: electricity; natural gas; fuel oil and other fuels; gasoline; and fuel, parts and supplies for recreational vehicles.

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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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No Rate Increases in Canada (October 2011)


Even with Inflation rearing its ugly head, the Bank of Canada is confident this is a short blip and things will simmer back down in terms of the Core Consumer Price Index. With this in mind the Bank of Canada decided to keep their key overnight rate at 1.0% for the next little while, which is good news for borrowers, and not for those holding CSBs and such.

The loose money policy looks to continue for the forseeable future thanks to a very conservative (if not bleak) view of Canada’s economic growth over the next period of time:

Overall, the Bank expects that growth in Canada will be slow through mid-2012 before picking up as the global economic environment improves, uncertainty dissipates and confidence increases. The Bank projects that the economy will expand by 2.1 per cent in 2011, 1.9 per cent in 2012, and 2.9 per cent in 2013.

The Bank of Canada does have a very optimistic viewpoint for inflation, though:

The weaker economic outlook implies greater and more persistent economic slack than previously anticipated, with the Canadian economy now expected to return to full capacity by the end of 2013. As a result, core inflation is expected to be slightly softer than previously expected, declining through 2012 before returning to 2 percent by the end of 2013. The projection for total CPI inflation has also been revised down, reflecting the recent reversal of earlier sharp increases in world energy prices as well as modestly weaker core inflation. Total CPI inflation is expected to trough around 1 per cent by the middle of 2012 before rising with core inflation to the two per cent target by the end of 2013, as excess supply in the economy is slowly absorbed.

So it looks like gas prices may drop off and they are hoping that will cool off our inflationary cycle? I certainly hope that might be the case, just so I can keep a few more dollars in my pockets. As long as their version of inflation keeps hanging around 2.0% we are safe in terms of interest rate increases (but that relies on lower or stable gas prices, doesn’t it? Hmmm….).

 

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Loose Money Continues in Canada (Sept 2011)

Yes the Bank of Canada yesterday confirmed no rate increases in their key overnight rate., keeping it at 1% for September 2011.

No big whoop, right? It’s been like this for a few years now, but, read the following from the bank:

The global economic outlook has deteriorated in recent weeks as several downside risks to the projection in the Bank’s July Monetary Policy Report (MPR) have been realized. The European sovereign debt crisis has intensified, a broad range of data has signalled slower global growth, and financial market volatility has increased sharply. Recent benchmark revisions show that the U.S. recession was deeper and its recovery has been shallower than previously reported. In combination with recent economic data, this implies that U.S. growth will be weaker than previously anticipated. The Bank expects that American household spending will be even more subdued in the face of high personal debt burdens, large declines in wealth and tough labour market conditions. Fiscal stimulus in the United States will also soon turn into material fiscal drag. Acute fiscal and financial strains in Europe have triggered a generalized retrenchment from risk-taking and could prompt more severe dislocations in global financial markets. Resolution of these strains will require additional significant initiatives by European authorities. Growth in emerging-market economies has been robust, although its rate and composition will be affected by weakness in major advanced economies. While commodity prices have declined owing to diminished global growth prospects, they remain relatively high.

Ur, um, this does not sound like a financial recovery, if anything it sounds like a financial relapse more than anything else. On the basis of this, the bank is of course leaving rates alone, and also they think inflation is at 2.0% right now (I disagree as does Stats Canada, but who are we to quibble).

The really weird thing about this, is now we have pundits that are predicting possible rate cuts?!? Holy crap on a cracker Batman, cuts? Yup, given how bad the U.S. economy is going Canada may have to lower it’s rates to keep from having a $1.50 Canadian Dollar, wow (I exaggerate but a Canadian dollar above parity with it’s U.S. counterpart is a very bad thing for the Canadian Economy as a whole).

Enjoy your loose money for a while longer, seems like we won’t be getting any rate increases for a while? Don’t know that for sure (and don’t quote me either), but that seems to be what is implied!

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Bank Rates Hover in Canada Again

 

Interest Rates and the Deathly Hallows

The Bank of Canada decided against increasing it’s overnight rate from it’s existing rate of 1%, which means at least one more month of loose money morals in terms of lending in Canada. While banks have been fiddling around with mortgage and lending rates trying to predict future Bank of Canada policies, the BofC itself has not changed it’s rates in quite a while, and barring Europe or the U.S. having a complete credit melt down (which is not that far out of the question), rates look to stay this way for a little while longer.

An interesting quote from the Bank is:

Total CPI inflation is expected to remain above 3 per cent in the near term, largely reflecting temporary factors such as significantly higher food and energy prices. Core inflation is slightly firmer than anticipated, owing to temporary factors and to more persistent strength in the prices of some services. Core inflation is now expected to remain around 2 per cent over the projection horizon. Total CPI inflation is expected to return to the 2 per cent target by the middle of 2012 as temporary factors unwind, excess supply in the economy is gradually absorbed, labour compensation growth stays modest, productivity recovers, and inflation expectations remain well-anchored.

So they are hopeful inflation will drop back a little (which will only happen if Gas prices moderate, or a huge drop in other aspects of the index), which will mean lower interest rates along with it. I think this is optimistic, but then again, I have been wrong before (and will be wrong again).

Remember that the May Inflation rate was about 3.7%  from Stats Canada, and there is no way that interest rates can stay lower if this keeps up, but our Bank of Canada friends seem to be confident this is a minor bump in the road, but again, we shall see.

The line to read clearly is their comment on world events:

The Bank’s projection assumes that authorities are able to contain the ongoing European sovereign debt crisis, although there are clear risks around this outcome.

In other words, be careful, if you think things are getting better, they can get much worse, pretty quickly. We won’t hear again from the Bank of Canada until after Labour Day, unless there is a sudden catastrophic economic situation that arises (say like the above quote?).

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