Plunging gas prices slow January inflation to 1.0%: Statistics Canada - InfoNews

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Plunging gas prices slow January inflation to 1.0%: Statistics Canada

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February 26, 2015 - 1:14 PM

OTTAWA - Rate cut? What rate cut?

Thursday's sluggish January inflation reading from Statistics Canada is the latest signal to many economists that another interest rate cut is not likely to be in the cards on Wednesday at the Bank of Canada's next policy meeting.

"Developments that have taken place since the last Bank of Canada meeting last month suggest that another rate cut in March is unlikely," Dina Ignjatovic of TD Economics wrote in a note to investors.

"Today's inflation data is slightly ahead of the Bank's forecast. As such, we now expect the Bank to leave rates unchanged for the remainder of the year."

Bank of Canada Governor Stephen Poloz this week appeared to throw cold water on the notion that another rate cut is in the offing.

The central bank caught people by surprise last month when it slashed rates by a quarter of a percentage point to 0.75 per cent — and Poloz said this week that the move bought him some more time to gauge how a dramatic plunge in oil prices might affect Canada's books.

"The downside risk insurance from the interest rate cut buys us some time to see how the economy actually responds," he said in a speech at Western University in London, Ont.

Slumping oil prices continue to send shock waves through Canada's economy by dragging down the loonie, forcing oil companies to cut spending plans by billions of dollars and hammering housing markets in the West.

Cheaper gas has also been a drag on Canada's annual inflation rate, which slowed to 1.0 per cent in January, Statistics Canada said Thursday.

The reading followed a rise of 1.5 per cent in December, which was also a deceleration from the previous month. Economists had expected the rate for January to come in at 0.7 per cent, according to Thomson Reuters.

Gas prices in January were at the lowest they've been since April 2009. Prices at the pump fell 26.9 per cent in January compared with the previous year.

The lower cost of gas also counterbalanced rising prices in seven of the eight categories in the agency's report.

Most of the drop in gas prices has occurred within the last six months. Since June 2014, Statistics Canada says gas prices have fallen 33.9 per cent.

All of this has even spilled over into the political realm. The Conservative government has put off its federal budget — typically released in February or March — until at least April to get a better sense of the effect of lower oil prices on Canada's bottom line.

Meanwhile, Statistics Canada says higher food prices and shelter costs led January's overall rise in the consumer price index.

The cost of food rose 4.6 per cent in January compared to the previous year, while shelter costs rose 2.0 per cent on an annual basis.

Consumer prices fell in the Atlantic provinces in January compared to a year earlier. The biggest decline was in Prince Edward Island, where prices were down 1.9 per cent.

Ontario posted the largest consumer price increase of all the provinces, up 1.6 per cent from the previous year, in part because of the higher cost of natural gas, clothing and homeowners' insurance.

Core inflation, the number the Bank of Canada closely monitors and which excludes some items from the volatile energy and food categories, rose by 2.2 per cent, just as it did in December. Economists had expected a rise of 2.1 per cent.

The performance of core inflation also suggested to economists a rate cut next week is unlikely.

"The steady performance in the core measure should allay concerns at the Bank of Canada about inflation expectations becoming unmoored," Dawn Desjardins of RBC Economics Research wrote in an investors' note.

"The risk that the sharp drop in oil prices will exert persistent downward pressure on growth and inflation underpinned the Bank's decision to implement a 25 bps rate cut in January which they described as providing a measure of insurance against the downside risks to both inflation and stability in the financial system."

On a seasonally-adjusted basis, the consumer price index was down 0.2 per cent in January, matching the drops in December and November.

News from © InfoTel News Ltd, 2015
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