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Cheap Gas Prices Keep February Inflation Rate Low At 1.0%: Statistics Canada

Darpan News Desk The Canadian Press, 20 Mar, 2015 01:07 PM

    OTTAWA — The country's annual inflation rate held steady for the second straight month as higher price tags nearly across the board met headwinds created by low gasoline prices, Statistics Canada said Friday.

    The agency's consumer price index increased by just 1.0 per cent last month compared with a year earlier, in large part due to the 21.8 per cent drop in pump prices.

     

    However, economists pointed to the strength in February of the core inflation rate, a measure closely monitored by the Bank of Canada that excludes some volatile items such as gasoline.

    The core rate was 2.1 per cent last month, down from 2.2 per cent in January.

    The central bank aims to keep that core reading as close as possible to an ideal two per cent target and it can adjust its overnight interest rate to help guide it toward that mark.

    Jimmy Jean, an economist with Desjardins Capital Markets, said the core rate's resilience should have considerable influence on whether the Bank of Canada moves its trend-setting rate next month.

    "That's something that might tell them maybe it's better to wait," said Jean, who anticipates the bank will keep its rate at 0.75 per cent at its next rate announcement on April 15.

    A pair of upcoming speeches, scheduled for next week, by Bank of Canada governor Stephen Poloz and deputy governor Timothy Lane will attract a lot of attention from observers scouring for cues on the timing of the next rate move, Jean added.

    In terms of upward pressure on prices, the report found higher costs in broad categories such as food, which rose by 3.9 per cent, and shelter, up by 1.8 per cent. The biggest year-over-year price increases included meat at 12.4 per cent and natural gas, which climbed by 10.8 per cent.

    Without seasonal adjustment, the headline consumer price index increased by 0.9 percentage points between January and February.

    Analysts said many of the month-to-month price gains were tied to items that were particularly sensitive to changes in the exchange rate, such as travel tours and furniture. The Canadian dollar has been sinking for months.

    "The inflation outlook in 2015 can best be described as a battle of the forces," TD Bank economist Diana Petramala wrote in a note to clients.

    "More specifically, as the combination of the drop in gas prices and a weak Canadian dollar continue to drive a wedge between headline consumer prices and the Bank of Canada's core measure of inflation."

    To demonstrate the inflation-dampening effect of lower pump prices, Statistics Canada noted the rate would have increased to 2.2 per cent on a year-over-year basis in February if gasoline had been excluded.

    Still, February's month-to-month gasoline price index registered a gain of 9.4 per cent compared to January. It said the increase followed seven straight monthly declines and was the largest gain since it rose by 12.4 per cent in March 2007.

    On a seasonally-adjusted basis, the consumer price index was up 0.2 per cent in February, following decreases of 0.2 per cent in January, December and November.

    Geographically, inflation rates increased in six provinces in the 12 months leading up to February, with Ontario registering the biggest gain at 1.3 per cent, Statistics Canada said.

    Statistics Canada also said Friday that total retail sales for January fell 1.7 per cent to $41.36 billion.

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