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Pace of inflation eases in June
 
BY GORDON ISFELD, FINANCIAL POST JULY 22, 2011

In June, prices for vehicles and gasoline declined, Statistics Canada 
reported Friday.


OTTAWA � Canada's annual rate of inflation pulled back in June as prices 
for vehicles and gasoline eased, taking some pressure off the Bank of 
Canada to begin raising interest rates.

Consumer prices rose 3.1 per cent from a year earlier, down from 3.7 per 
cent in May, Statistics Canada reported Friday. The core inflation rate � 
which strips out volatile items such as food and energy � also eased in 
June, falling to 1.3 per cent from a pace of 1.8 per cent the previous 
month.

Economists had expected overall inflation of 3.6 per cent in June and a 
core rate of 1.9 per cent.

"On a year-over-year basis, prices increased in all eight major 
components in June. However, except for two components � food as well as 
household operations, furnishings and equipment � the rate of increase in 
June was slower than it was in May," Statistics Canada said.

Prices for passenger vehicles fell 3.1 per cent in June from a year 
earlier, following a 0.7 per cent annual increase in May. "This decline 
was mainly a result of larger discounts given by some manufacturers this 
year compared with June of last year," the federal agency said. "The 
smaller year-over-year increase in gasoline prices in June compared with 
May was also a factor."

Travel accommodation prices also declined in June from a year earlier.

"Canadian inflation has been going up and down like a yo-yo in recent 
months, alternating between nasty high-side surprises and calming 
pullbacks in prices," said Douglas Porter, deputy chief economist at BMO 
Capital Markets.

"Today's much more benign reading for both headline and core inflation 
takes the near-term pressure off the Bank of Canada to do anything 
quickly on rates � assuming of course we don't get yet another massive 
reversal in prices next month."

While the Bank of Canada has signalled its trendsetting interest rate � 
now at a near record low of one per cent � will begin rising in the 
second half of the year, governor Mark Carney suggested this week that 
borrowing costs would rise only gradually as economic growth stabilizes.

In its quarterly Monetary Policy Report on Wednesday, the bank said 
inflationary pressure should be temporary and that prices are expected to 
remain subdued � even with a gradual reduction in monetary stimulus.

The bank has also cut its second-quarter growth forecast to 1.5 per cent 
from two per cent. As well, it revised its growth outlook for 2011 to 2.8 
per cent, down from the previous estimate of 2.9 per cent. Left unchanged 
were growth forecasts for 2012, at 2.6 per cent, and 2013, at 2.1 per 
cent.

It said risks to growth included sovereign debt problems in Europe, a 
stronger Canadian dollar and the likelihood of weaker consumer spending � 
which had been a driving force in Canada's recovery following the 2008-09 
recession.

Avery Shenfeld, chief economist at CIBC World Markets, said the June 
inflation report provides "some key breathing room for the BoC, since 
even though the core rate will likely drift up as some low numbers drop 
out from the 12-month calculation in the coming quarter, odds now favour 
it remaining below two per cent.

"While we won't change our call on this number alone, markets will dampen 
odds for a fall rate hike," he said.

Diana Petramala, at TD Economics, said "inflation should pickup modestly 
as the Canadian economy bounces back from its soft patch in the second 
half of 2011. Nonetheless, soft domestic and global prospects should keep 
core inflation near the Bank of Canada's two per cent target through the 
rest of 2011."

Statistics Canada said food prices rose 4.3 per cent in June from a year 
earlier, following a 3.9 increase in May. Meat prices were up 5.9 per 
cent, while bakery products were up 7.2 per cent and fresh vegetable 
prices jumped 8.4 per cent. Prices for food purchased from restaurants 
rose 3.3 per cent.

Shelter costs were up 1.7 per cent in the 12 months to June.

"In addition to higher prices for fuel oil and electricity, homeowners' 
replacement cost increased 1.8 per cent," the agency said. "However, 
mortgage interest cost, which measures the change in the interest portion 
of payments on outstanding mortgage debt, decreased 1.9 per cent. Prices 
for natural gas also fell."

TD's Petramala said: "Food prices pose the most significant upside risk 
to inflation. In a bit of delayed response, grocers are passing on rising 
costs associated with high prices for agricultural products. Food 
inflation should continue to contribute to inflation over the rest of 
2011."

Postmedia News

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Annual inflation rate in June (percentage):

Canada 3.1

Newfoundland and Labrador 3.2

Prince Edward Island 3.4

Nova Scotia 4.4

New Brunswick 3.6

Quebec 3.0

Ontario 3.6

Manitoba 3.2

Saskatchewan 2.6

Alberta 2.1

British Columbia 2.7


Source: Statistics Canada