Inflation Rate Stays Negative

Date: Friday, October 16th, 2009

Source: CBC News

Canada’s annual inflation rate stayed well below zero for the fourth consecutive month in September, dropping to –0.9 per cent.

The consumer price index slid by one-10th of a point last month to –0.9 per cent — matching a 53-year low that was also recorded in July, Statistics Canada reported Friday

On a month-to-month, seasonally adjusted basis, there was a 0.1 per cent increase in the consumer price index. The seasonally adjusted monthly CPI has gone up in four of the past five months.

As has been the case for the better part of a year, it was the disparity in gasoline prices between last year and this year that was the main contributor to the negative inflation rate.

The cost of filling up at the pump was 23 per cent less in September than 12 months earlier. That came after a similar 21.2 per cent drop in August.

But the gap is certain to close in the next inflation report because it was at about this time last year that gasoline prices began falling in response to recessionary forces and the collapse in global oil demand.

“There are no major surprises here,” BMO economist Doug Porter wrote in a research note on Friday. “This is likely the low-water mark for inflation, as the steep slide in pump prices late last year will soon fall out of the calculation, and headline inflation is poised to move back into positive terrain possibly by next month.”

No other component of the consumer price index has been as critical in suppressing inflationary pressures as energy, the agency noted.

Excluding the effect of energy prices, the annual inflation in Canada was well above zero in September at 1.3 per cent.

Falling costs

The low inflation rate was also influenced by the falling cost of autos, shelter and transportation.

Canadians paid 5.9 per cent less for purchasing autos last month than a year ago, while shelter costs were 1.8 per cent lower and transportation costs fell 7.2 per cent.

But of the eight major components Statistics Canada uses to gauge inflation, five were in positive territory, including food, household operations, health and personal care, recreation and education, and alcohol and tobacco.

Food prices continued to be the main driver of inflation with a 2.8 per cent annual gain last month, although that is less than the four per cent increase registered in August. The biggest increases came in the price for fish, which rose 8.8 per cent, and for sugar and confectionery, up 8.7 per cent.

There were also price increases of 2.2 per cent in household operations, furnishings and equipment, a 3.9 per cent spike in health and personal care costs, and a 1.1 per cent increase for recreation, education and reading.

The report is unlikely to cause any worries to the Bank of Canada that inflation will be a problem in the near future.

The core inflation index, which excludes volatile items such as gasoline, slipped to 1.5 per cent in September, below the central bank’s target of 2.0 per cent. In August, the rate had been 1.6 per cent.

The core rate is the one that the Bank of Canada pays most attention to in making its policy decisions.

Among provinces, only Saskatchewan recorded positive inflation in September. In Nunavut, the inflation rate was 1.2 per cent, down from 1.6 per cent in the previous month.

The greatest decline came in Prince Edward Island, which fell 1.4 per cent.


Lawrence Kobescak

Lawrence Kobescak

Lawrence Kobescak, the creator behind OntarioMortgageSuperstore.com is a real estate sales representative, mortgage agent and real estate investor. OntarioMortgageSuperstore.com has reached over 240,000 Canadians since 2009. Lawrence has been quoted in the Globe & Mail and MortgageBrokerNews.ca.

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