Inflation only 1%, and going nowhere

Interest rates expected to flatline, experts say

Canadian consumers can expect to see only moderate if any price increases across the broad spectrum of goods and services in the foreseeable future, analysts said Friday after release of new data showing inflation fell to one per cent last month.

Friday’s fresh data from Statistics Canada trimmed the annual inflation rate two-tenths of a point to one per cent, and pegged the month-tomonth rise in prices at a tame 0.2 per cent.

That follows a wild February, which saw the annual rate climb 0.7 points and prices jump 1.2 per cent in one month.

But that was an aberration caused by a sharp rise in gasoline prices. Gas prices reversed course in March and have fallen further still so far into April, pointing to an even lower rate when the numbers come out next month.

“Canadian inflation is showing its true colours again — bland,” said Bank of Montreal chief economist Doug Porter.

“Prices in almost all regions and almost all categories are currently running at well below a two-percent annual pace, and the nearterm outlook is lower. We remain in a world where both growth and inflation are scrambling to stay above one per cent.”

Porter noted that there is nothing on the horizon that appears ready to upset the apple cart. Political tensions have not as yet led to a spike in energy prices and even last month’s severe drought in the United States has had little impact on food prices, despite predictions they could rise about five per cent this spring.

TD Bank economist Francis Fong called the lack of inflationary pressure par for the course given the anemic Canadian economy, which grew at less than one per cent in the last six months of 2012 and appears to have picked up only modestly so far into 2013.

Fong said he expects inflation to remain in the slow lane for some time, but not to veer into deflationary territory, which would concern the Bank of Canada. As it stands, the current environment suggests the central bank could remain on a holding pattern in terms of interest rates for the next year or two.

“We do not expect the first hike in the overnight rate to occur until the end of next year,” he said.