Canadian consumer prices index rose by 0.3% m/m in November and pushed upthe annual headline inflation rate to 2.5%.
The main upward pressure on inflation came from decreases in gasoline, restaurants prices and mortgage rates. The cost of motor fuel rose by 4% m/m and 17.6% y/y, accordingly. Gasoline strongly rose in price due to marked decline in the second half of last year combined with the recent substantial increase of its prices.
Mortgage interest payments soared by 7% over year, following a 4.7% increase in November 2006 (table 1). This component has grown at a monthly rate between 0.7% and 0.8% since July 2007. However, growth rate of house prices, excluding land, has been slowing to 4.9% during the last twelve months.
Higher restaurant and café prices had a positive impact on the CPI in their turn. In particular, consumers spent 2.4% more on restaurant and café services.
All the other components of CPI had a downward pressure on inflation. Automobiles had the most significant positive impact on the CPI. Motor vehicle prices and lease rates declined by 3.9%, which has been the biggest drop since early 1960s. Such a downward movement was caused by an increase of discounts for new 2008 models.
Consumers also took advantage of 11.1% and 6.2% decreases of fresh vegetable and fruit prices. Another source of fall was accommodation prices, which edged down by 5.5% m/m. Reduction of tariffs in Ontario decreased electricity prices by 1.6% over year. It was completed by 14.9% decline of computer prices.
In November core inflation, excluding food and energy prices, declined by 0.2% to 1.6% over year, which has been the lowest rate since April 2006 (chart 1).
The core CPI fell below the Bank of Canada’s forecasted level by 0.7%. In particular, the CPI was expected to rise by 2.3% in the fourth quarter of 2007.
Relatively high inflation, including energy prices, was conditioned by two factors: Iran’s nuclear project, which pushed higher oil and precious metal prices, and the increase of mortgage rates, which accelerated the growth rate of payments for these loans.
However, we guess, that the positive impact of the above mentioned on inflation will be limited, because the crisis in the US real estate market is deepening, which will have a significant downward pressure on Canadian economy. In medium term, the main driver of inflation remains the low unemployment, which contributes to household income and increases consumption. But high immigration is partially offsetting the strong gain of employment. Consequently, the pace of inflation will be moderate in Canada both in short and medium terms. Moreover, there is a probability of base interest rates cut in January, to mitigate the negative impact of crisis in the US real estate market and restrain the strengthening pace of Canadian dollar.
CANADA ECONOMIC INDICATORS
Table 1
|
Inflation, %
|
2007
|
|
2006
|
|
Nov
|
Oct
|
Sep
|
...
|
Nov
|
Oct
|
Sep
|
|
Consumer Prices Index
|
|
|
|
|
- m/m
|
0.3
|
-0.3
|
0.2
|
|
0.2
|
-0.2
|
-0.5
|
|
- y/y
|
2.5
|
2.5
|
1.7
|
|
1.4
|
0.9
|
0.7
|
|
CPI ex. energy and food
|
|
|
|
|
- m/m
|
0.0
|
-0.2
|
0.4
|
|
0.3
|
0.1
|
0.5
|
|
- y/y
|
1.6
|
1.8
|
2.0
|
|
2.2
|
2.3
|
2.2
|
|
Mortgage Interest Payments
|
|
|
|
|
- m/m
|
0.8
|
0.8
|
0.8
|
|
0.5
|
0.6
|
0.6
|
|
- y/y
|
7.0
|
6.7
|
6.4
|
|
4.7
|
4.0
|
3.3
|
Source: Canadian Statistics Online, Bank of Canada
Chart 1
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Source: Canadian Statistics Online, Bank of Canada
