OTTAWA ? The interest rate of inflation in Canada accelerated faster than expected last month, but economists asserted costs are not rising in a level that will force the Bank of Canada to alter course.
Nearly half of Canadians are within $200 per month to be not able to pay their bills, poll finds
And that’s not the worst of it: A quarter of respondents are already not able to cover their bills and almost a third said an interest rate hike could throw them into bankruptcy. Read on
Food, shelter and transportation costs all rose in January as the consumer price index registered a two percent jump for that month, the best level since November 2014 and better than the 1.8 percent consensus forecast.
Canadians shopping for groceries received one of the biggest sticker shocks, as data shows that prices for fresh vegetables jumped 18.2 percent in January year-over-year, following a 13.3 percent increase in December. Even gasoline prices saw a couple.1 per cent rise, despite the low oil price environment.
The surprise uptick will certainly catch the attention of the central bank, but the recent rebound of the loonie to 73 cents U.S. should help temper prices for consumers, say economists.
“Given the strengthening in the currency because the Bank’s January decision, there is less likelihood that these pass-through effects intensify further,” said David Tulk, head of worldwide macro strategy at TD Securities. “As an effect, we see the Bank comfortable to remain on the sidelines in anticipation of the announcement of the fiscal stimulus.”
January’s upward relocate prices was broad, with seven from the eight areas tracked by Statistics Canada seeing higher prices (only clothing and footwear registered a little decrease). Core prices, which exclude food and energy because they tend to be volatile, also rose two percent for the month.
Stronger prices complicate the image for the Bank of Canada, which has loosened monetary policy in the past year by cutting interest rates from one percent by last January to the present 0.Half mark. The moves have led to the weaker dollar, something the bank noted last month when Governor Stephen Poloz opted to help keep the bank’s overnight rate unchanged.
“The mixture of slowing growth and rising inflation is a trend the Bank of Canada would not want to see continue,” said Tulk.
Canada’s dollar is currently trading at roughly 73 cents U.S. after falling to a 13-year low of just under 69 cents last month. The currency has been steadily retreating against its American counterpart since it was last at parity three years ago.
Weaker purchasing power means goods have grown to be more costly to import. Vegetable and fruit prices bear a few of the biggest sticker shocks because a large amount of produce in the united states is imported.
Retail sales data released by Statistics Canada Friday also demonstrated that even while sales dropped in December, retailers raised their prices by an average of two percent in the month.
“Retailers could be adjusting prices to reflect higher import costs, courtesy of a much depreciated Canadian dollar,” said Krishen Rangasamy, senior economist at National Bank of Canada.
Paul Ashworth, chief North America economist at Capital Economics, said that rising inflation in recent months is starting to eat into Canadian real incomes. The Organisation for Economic Co-operation and Development noted Thursday that core inflation in Canada is the highest among its 34 people in primarily high-income countries.
Related
- ‘Flashing warning signs’: Canadian markets bracing for ‘dramatic’ Bank of Canada action – along with a recessionTrudeau promotes spending to enhance economy as economists warn of weak outlookCanada could adopt negative interest rates over the following 2 yrs, Citi says
-
-
-
“Rising prices at the grocery store are already gaining media attention and could begin to eat into consumer confidence,” he said.
It remains seen if the consumers will ramp down spending if prices still rise. Statistics Canada reported that retail sales fell 2.2 per cent in December, or 2.3 percent on the real basis accounting for the outcome of prices, that was the largest drop since 2008.
But economists have noted that December retail sales have been weak in Canada previously 3 years, because of factors for example more Canadian retailers taking part in Black Friday Sales in November. Mild weather further worsened sales as building materials, winter clothing and winter sporting goods sales all delivered.
One area where the weakness may linger is vehicle sales. Statscan asserted new sales fell 4.1 percent in December, while used sales were down 2.5 per cent for the month. Scotiabank said inside a report last month it expects Canadian car sales to be flat this year, after experiencing record growth in 2015. Weakness in oil provinces is expected to weigh on strong sales in additional robust economies for example Ontario, British Columbia and Quebec.
Overall, retail sales in December were weakest within the resource provinces, with Alberta visiting a 3.1 per cent decline in sales and its third stop by yesteryear 4 months. Sales in Saskatchewan dropped 1.1 per cent while those who work in Newfoundland and Labrador were down 4.4 percent.
