Annual pace of inflation slows to 1.9 per cent

OTTAWA The annual pace of inflation slowed in December compared with November as gains in the price of gasoline eased up, Statistics Canada said Friday.

The agency said the consumer price index for the final month of 2017 was up 1.9 per cent compared with the same month a year earlier. That compared with a reading of 2.1 per cent in November.

Excluding gasoline, prices were up 1.5 per cent year on an annual basis in December, matching the increase in November.

However, 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 morevolatile items like gasoline, ticked higher last month.

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.

“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.

“The Bank of Canada will likely take comfort both in that the growth-inflation nexus remains intact, and in their decision to increase the key policy rate to 1.25 per cent earlier this month. Risks and uncertainty may result in increased caution, but ultimately, achieving the inflation control target will require further monetary tightening.”

Statistics Canada said prices were up in seven of the eight major categories as the transportation index, which includes 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 increase in November. Gasoline, a key component of the group, climbed 12.2 per cent compared with a year earlier following a 19.6 per cent increase in November.

The shelter index climbed 1.4 per cent compared with a year ago as natural gas prices rose 6.2 per cent following a 3.1 per cent increase in November.

Meanwhile, the household operations, furnishings and equipment index fell 0.3 per cent compared with a year ago as the cost of telephone services slipped five per cent as the country’s big wireless companies battled for market share in December with deeply discounted offers.

The Bank of Canada raised its key interest target last week by a quarter of a percentage point to 1.25 per cent.

The central bank 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, the Bank of Canada pointed to unexpectedly solid economic data as key drivers behind the decision. It was the third rate increase since last summer.