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Canada’s inflation rate sharply lower as energy prices tumble
November 21, 2008
Canadian consumer prices fell by a greater-than-expected 1% in October with the year-over-year rate slipping to 2.6% from 3.4% in September. The monthly decline was the largest since June 1959. Expectations had been for prices to fall by a more modest 0.6%. The seasonally adjusted index fell 0.5% in October relative to September. The Bank of Canada’s core measure, which eliminates the impact of eight volatile series plus indirect taxes, also fell more than expected, dipping 0.2% in October with forecasters looking for the index to hold steady. The year-over-year core rate was 1.7%, unchanged from September.
The sharp drop in the CPI index in October reflected lower prices for gasoline, which plunged 13.4% from September, traveller accommodation (-7%) and natural gas (-6.1%). Changes in property taxes, which get reflected in the CPI once a year, rose 3.2%.
Relative to a year earlier, prices for gasoline were up 13.3%, a sharp slowing from September's 26.5% pace. Food prices were 6.1% higher than in October 2007, a pick-up from September's 5.6%. Mortgage interest costs were 7.2% higher than in October 2007. However, there were several components showing prices declines during the past 12 months, with passenger vehicle prices off 9%, women's clothing prices falling 5.8%, and computer (-12%) and video equipment (-11.5%) also down.
Like reported declines in the United States, the United Kingdom and the Eurozone, Canada's annual inflation rate was sharply lower in October as energy prices tumbled. Core prices also declined and, although the year-over-year rate held at 1.7%, the core rate remains well contained under the Bank of Canada's 2% target.
Going forward, weak growth caused by continued tight credit conditions and restrained demand from the United States will see the amount of slack in Canada grow, which will put additional downward pressure on prices. With price pressures ebbing, the Bank of Canada, like other central banks, will continue to focus on the downside risks to growth.
Earlier this week, Governor Carney commented that the risks to Canada's economic growth and inflation outlook "appear to have shifted to the downside" and that “some further monetary stimulus will likely be required.” This morning's report showing a sharp slowing in inflation is in line with the Bank's forecast that the headline inflation rate will fall below 2% in early 2009 and leaves the door open for another cut to the policy rate before year-end.
Dawn Desjardins, Assistant Chief Economist, RBC Economics Research
To view charts of today's data, go to
http://www.rbc.com/economics/html_calendars/ca/calendar.html (Canada)
http://www.rbc.com/economics/html_calendars/us/calendar.html (United States)
RBC Economics Research contacts:
Paul Ferley, Assistant Chief Economist
Dawn Desjardins, Assistant Chief Economist
Josh Heller, Economist
Go to Financial Markets Daily (pdf) for a daily summary of North American interest rates and foreign exchange rates.
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View trend charts of today's Canadian releases.
View trend charts of today's U.S. releases.
