Canada’s inflation rate rises 1.5% in December
But decrease in cost of food helped keep overall increase lower than expected 1.7%
Increases in the cost of transportation and shelter drove the inflation rate up 1.5 per cent in Canada in December over a year earlier, according to figures released by Statistics Canada on Friday.
But a decrease in the cost of food in December — the third consecutive month of declines in the cost of food — helped keep the overall increase in consumer expenses lower than expected. Economists had expected a bigger increase in inflation, of 1.7 per cent year-over-year.
The Consumer Price Index (CPI) in Ontario was up 2 per cent on a yearover-year basis, driven by an11.2-percent surge in prices for electricity and 7.4 per cent increase in the cost of buying a home.
Canada was one of the few major industrial economies to report an easing in headline inflation in 2016 — in the U.S. inflation was up 2.1 per cent in the year — owing to the rela- tive stability in the currency, which rose after a few years of devastating declines, according to Douglas Porter, chief economist, BMO Financial Group.
“An ongoing collapse in food prices continues to weigh heavily on overall inflation, with prices dipping again last month and now down a honking 2.8 per cent year-over-year at your local grocer — that’s the steepest fall since the early 1990s,” Porter said.
“On the flip side, gasoline prices are rising quickly, up 3.1 per cent monthover-month and now up 5.5 per cent from the very low ebb a year ago.”
Newfoundland registered the highest CPI increase, at 4 per cent, the result of tax increases, but Ontario registered the highest increase among the four largest provincial economies, Porter said.
While the increase in the cost of buying a home is up, it does not rise in tandem with the increase in costs of buying a home in Toronto, Porter pointed out.
Meanwhile food prices in Ontario were right in line with grocery prices across the country.
“I know for many folks that’s extremely hard to believe, but it is in- deed true,” Porter said.
“Some of that is due to the fact that they were relatively hefty a year ago when the Canadian dollar was dipping below 70 cents and causing the great cauliflower crisis. We’ve seen things moderate but it’s not just fruit and vegetables — prices have really moderated across the board.”
Grocery prices are down 2 per cent in the U.S. in the past year, due to a good year for crops in the U.S. and dropping livestock prices there.
Porter said increasing competition in the grocery sector in Canada is also driving grocery prices down.
According to grocery retail analyst Peter Sklar, from BMO Capital Markets, food deflation is likely to continue for the next several months, pressuring top-line growth for grocers.
“Overall, we find these results to be negative for the Canadian grocers, as deflation had appeared to be stabilizing in Canada in November,” said Sklar.
Canadian retail sales rose by just 0.2 per cent in November, with auto sales accounting for most of the increase at 1.6 per cent.
The pain was not equally shared among the provinces.