Roma Luciw
Globe and Mail Update
Canada's annual rate of inflation unexpectedly slowed to 2.2 per cent in February, as consumers paid less for gasoline, Statistics Canada said Thursday.
That slowdown comes on the heels of a 2.8-per-cent year-over-year rise in January. Analysts were expecting a gain of 2.4 per cent in the annual inflation rate, according to a survey conducted by Bloomberg News.
The relatively benign reading on consumer prices suggests that, for now, the Bank of Canada may not need to raise interest rates much higher. The Canadian dollar slipped 86.37 cents (U.S.) from 86.62 cents Wednesday.
“On balance, core inflation in fact continues to generally surprise to the low side, no doubt a big relief to the Bank of Canada,” said Bank of Montreal economist Douglas Porter in a note. “There is nothing here to suggest that the bank will feel the need to change their more dovish stance recently. We still look for one more hike from the bank next month, and then a move to the sidelines.”
On a monthly basis, inflation last month slowed to 0.2 per cent from January to February, after a 0.5-per-cent month-over-month increase in January, Statscan said. Analysts polled by Bloomberg were expecting that prices would remain flat from the previous month.
Excluding energy, the all-items index rose 1.6 per cent year-over-year in February, the same increase as in the previous month. At the same time, the all-items index excluding eight volatile components rose 1.7 per cent year-over-year, also unchanged from January and in line with expectations.
A drop in prices at the pump was the main factor that sent inflation lower in February, Statscan said. After a surge in January, gasoline prices eased 6.8 per cent between January and February. Each of the provinces experienced this drop, ranging from 0.1 per cent in Newfoundland to 9.5 per cent in Ontario.
After a 15.4 per cent hike in January, natural gas prices fell 5.5 per cent in February amid lower commodity costs, the report said. Alberta was responsible for most of the national drop, with a decrease of 31.4 per cent.
Statscan said that auto prices, homeowner replacement costs and natural gas were the factors driving the increase in consumer prices in February. Mitigating those gains were lower prices on insurance premiums for autos, computer-related equipment and supplies, as well as and women's clothing.
Six of the eight major components in the consumer price index were higher this February from last, with shelter rising 3.7 per cent, transportations rising 3.1 per cent, and food rising 2.8 per cent. Exerting downward pressure, clothing and footwear eased 2.5 per cent.
Inflation in February rose at the fastest pace in Prince Edward Island on a year-over-year basis, while the slowest rate was in British Columbia.
Canada's central bank has raised rates steadily since September to 3.75 per cent. After its last quarter-point hike on March 7, the bank signalled it is nearing the end of its rate-hike campaign, noting last week that “some modest” further increase in the policy interest rate “may be required.”
February is the 26th month in a row that the core inflation rate came in below the Bank of Canada's target rate of 2 per cent, something that is expected to continue in 2006, said Marc Pinsonneault, a senior economist at National Bank Financial.
“If the government soon proceeds with a GST tax cut, headline CPI could even undershoot the core,” he said, referring to Prime Minister Stephen Harper's campaign promise to reduce the GST. “With the real policy rate already in the mid of the 1.5-per-cent-2.5 per cent range considered neutral, the outcome of the next Bank of Canada interest-rate setting meeting will likely depend on the behaviour of the Canadian dollar.” |
