Easing of gas prices slowed inflation in December

OT TAWA The overall annual pace of inflation slowed to 1.9 per cent in December as gains in the price of gasoline eased up, Statistics Canada said Friday.

But economists said the economic strength last year is pushing underlying prices higher.

TD Bank senior economist Brian DePratto noted that two of the Bank of Canada’s three preferred measures of core inflation, designed to look through the noise of more-volatile items like gasoline, ticked higher last month.

“Looking past the energy-led deceleration in inflation, hot growth of the Canadian economy in 2017 now appears to be turning into somewhat hotter price growth,” DePratto wrote in brief note to clients.

CPI-trim — which helps filter out extreme price changes — rose to 1.9 per cent from 1.8 per cent in November, while CPI-common — which filters out prices that changed due to extraordinary circumstances — climbed to 1.6 per cent from 1.5 per cent. CPI-median was unchanged compared with November at 1.9 per cent.

“It provides a little more confirmation that the interest rate hike earlier this month was justified from an economic fundamentals point of view,” he said of the move higher in core inflation. “That core mandate of the bank is to control inflation and this speaks to the need for further hikes.”

The Bank of Canada aims to keep inflation at two per cent, the midpoint of a target range of one to three per cent over the medium term.

In raising its trendsetting rate to 1.25 per cent last week, the Bank of Canada pointed to unexpectedly solid economic data as key drivers behind the decision.

CIBC economist Nick Exarhos also noted that underlying inflation trends appear to be firming.

“Core inflation metrics are trending in the right direction, something that supports the Bank of Canada’s decision to hike rates at the start of 2018,” he said. “We could see some deflationary pressure from the stronger Canadian dollar, but given minimum wage hikes, a closed output gap, and what is likely to be stronger average pricing for energy over the balance of this year compared to 2017, inflation is likely to accelerate.”

Overall, Statistics Canada said Friday that the consumer price index for the last month of 2017 was up 1.9 per cent compared with the same month a year earlier. That compared with 2.1 per cent in November. Excluding gasoline, prices were up 1.5 per cent year over year on an annual basis in December, matching the increase in November.

Prices were up in seven of the eight big categories as the transportation index, including gasoline, and the shelter group led the way.

Transportation prices were up 4.9 per cent from a year ago compared with a 5.9 per cent rise in November. Gasoline rose 12.2 per cent compared with a year earlier after a 19.6 per cent increase in November.