Core inflation sank to the lowest level in two years last month as car dealers chopped prices to stay competitive with U.S. rivals, a sign that price increases pose little threat to the Canadian economy.
Overall consumer prices cooled to a 2.4-per-cent annual gain last month from 2.5 per cent in November, Statistics Canada said Friday. Core prices, which strip out the most volatile items in the index, rose a less-than-expected 1.5 per cent.
The release comes one day after the Bank of Canada chopped its view of core inflation to below 1.5 per cent by mid-year as retailers adjust prices due to a strong dollar and the GST reduction takes hold. The central bank, which plans to cut interest rates, keeps a close watch on core prices because they tend indicate future inflation trends.
Friday's report will let the bank “provide stimulus to the Canadian economy and cushion the blow from the slowing U.S. economy, without worrying too much about re-igniting inflation pressures,” said Jacqui Douglas, economics strategist at TD Securities, in a note.
Cars became cheaper last month amid pressure to bring Canadian prices in line with the U.S. The price for buying and leasing a vehicle slid 4.1 per cent, Statscan said Friday. (The Globe and Mail)
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Economists had expected overall inflation to rise 2.4 per cent with core prices gaining 1.7 per cent.
Cars became cheaper last month amid pressure to bring Canadian prices in line with the U.S. The price for buying and leasing a vehicle slid 4.1 per cent, “attributable to a continuation of discounts on new 2008 models,” Statscan said.
Price easing showed up elsewhere too. Fresh fruit and vegetables dampened food prices, led by declines for oranges and apples, at 15.8 per cent and 13.1 per cent.
Computer equipment and supplies prices continued to decline as Canadians paid less for video equipment. A sharp drop in prices for liquid crystal display screens and for laptop computers contributed to the declines, the report said.
The price of books and other printed material, excluding textbooks, tumbled 7.7 per cent.
All that mitigated upward pressure from pricier housing and gasoline costs.
Prices at the pump jumped 14.9 per cent between December of this year and last, though that was down from the previous month. Higher crude oil prices are responsible for the gain in gas, which accounts for about 5 per cent of the CPI basket weighting.
Mortgage interest costs were 7.3 per cent higher last month and homeowners' replacement costs — which represents the cost of maintaining a housing structure — advanced 4.4 per cent.
Restaurant food is also exerting inflationary pressure while at the grocery store, baked goods are more expensive amid soaring global wheat prices.
Among regions, the biggest slowdowns took place in Alberta — in recent years the country's hot-bed for inflation — and Saskatchewan.
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