Fruit, vegetable costs push up inflation to two per cent

OTTAWA — The consequences of the steady fall in the Canadian dollar are starting to push up inflation, with rising prices for imported goods like fresh fruits and vegetables leading the way.

Statistics Canada said Friday that the country’s annual inflation rate reached two per cent last month, its highest mark since November 2014.

The January year over year inflation number was up from 1.6 per cent in December.

The agency’s latest consumer price index found that inflation climbed in every province last month at a time when the weaker exchange rate was contributing to higher costs for imported goods.

Last month, the overall cost of food was up four per cent compared with a year earlier, with fresh vegetable prices up 18.2 per cent and fruits up 12.9 per cent.

A closer look at the data shows that lettuce prices last month were 17.9 per cent higher than the year before, apples were up 16.6 per cent and tomatoes up 11.9 per cent.

“Very strong indeed — much stronger report than what we expected,” Desjardins senior economist Jimmy Jean said of the inflation number. “(The increase) is largely in the usual suspects these days — fruits and vegetables.”

Year-over-year prices moved upwards in every category of the index except for clothing and footwear, which saw a decrease of 0.3 per cent compared with January 2015.

Lower prices in January for natural gas, fuel oil and telephone services kept downward pressure on the inflation reading. Natural gas was down 18.6 per cent, fuel oil down 15 per cent and telephone services 2.5 per cent, the agency said

The overall January inflation rate also hit the Bank of Canada’s ideal target of two per cent. The central bank watches the inflation rate very closely whenever it makes decisions on whether to move its benchmark interest rate. Its next policy meeting is scheduled for early March.

Jean said he wouldn’t be surprised if inflation moved above two per cent and, if it does, it likely wouldn’t be a major preoccupation for the central bank, since it maintains a target range of one to three per cent, he added.

Statistics Canada’s core inflation rate, which excludes some volatile items such as gasoline, was 1.9 per cent in December.

The agency also released its most recent retail sales data, which showed a drop of 2.2 per cent to $43.2 billion in December compared with November, when sales rose 1.7 per cent. Retail sales improved 0.1 per cent month over month in October.

Experts said the decrease was largely due to unseasonably warm weather and lighter than usual snowfalls in December, as well as the impact of Black Friday, pre-holiday sales events that led to stronger numbers in November.

Retail sales fell in almost every sub sector, with motor vehicle and parts dealers seeing the biggest decrease in dollar terms.

Brian DePratto of TD Economics said the report underscored the “softness” in the economy over the final three months of 2015.

“Even when taken alongside more positive December manufacturing and wholesale reports, we nevertheless expect that the Canadian economy effectively stood still or contracted slightly in the fourth quarter,” DePratto wrote in a research note to clients.