OTTAWA – The effects of the global oil slump weighed on Canadian inflation last month as falling pump prices helped slow the annual rate to 1.5 per cent, a deceleration from two per cent in November.
On Friday, Statistics Canada’s latest consumer price index found gasoline prices in December fell 16.6 per cent compared with the previous year, which followed the year-over-year November decline of 5.9 per cent.
Cheaper gas also counterbalanced rising prices in seven of the report’s eight categories.
The data represented the latest example of how deep the rapid decline of oil prices has already reached into the Canadian economy.
The Bank of Canada unexpectedly cut its trend-setting interest rate Wednesday by a quarter percentage point, bringing it down to 0.75 per cent in response to the effect of low crude prices on inflation.
The central bank predicted inflation to temporarily dip below one per cent in 2015 — under the bank’s target range — before climbing back up to two per cent in the second half of the year.
“It supports the Bank of Canada’s decision this week to lower interest rates,” said National Bank senior economist Krishen Rangasamy, referring to December’s “soft” inflation.
Amid the uncertainty, the oil-price collapse also prompted the federal government to take the unusual step of delaying its budget until at least April, so it could weigh the effects on Canada’s bottom line.
The fall in oil prices has also dragged down the Canadian dollar.
With that in mind, Rangasamy will be watching for signs the depreciating loonie is pushing up prices on imported goods.
In the report Friday, Statistics Canada found gas prices fell 9.8 per cent, month-over-month, between November and December and slid 24.6 per cent between June and December.
The survey also measured Canada’s core inflation rate, which excludes some volatile items such as gasoline and is carefully monitored by the central bank, sped up slightly in December to 2.2 per cent. The core rate was 2.1 per cent for November.
The central bank aims to keep the core measure as close to its ideal two per cent target as possible.
Dropping gas prices counteracted December gains in other areas.
Statistics Canada said some of the biggest year-over-year price increases included natural gas at 16.5 per cent, meat at 13.1 per cent and cigarettes at 11.4 per cent. All three also saw major gains in November.
Looking at the provinces, inflation readings for December slowed on a year-over-year basis in every province, except for Manitoba, where inflation accelerated to 1.5 per cent from 1.1 per cent in November.
Prince Edward Island was the only province that registered a drop in consumer prices compared with the year before, with a decline of 0.4 per cent.
On a seasonally adjusted month-to-month basis, Statistics Canada’s report said prices overall fell 0.1 per cent in December, after dropping 0.2 per cent in November.
Statistics Canada also said Friday that retail sales in November rose by 0.4 per cent to $43 billion.
The agency said the increase was led by a 13.4 per cent increase in sales at shoe stores and a 4.9 per cent gain at clothing stores. Meanwhile, sales at beer and liquor stores fell 0.5 per cent and grocery stores saw a drop of 0.4 per cent.
Jimmy Jean, a senior economist with Desjardins Capital Markets, called the rise in retail sales a “surprise” and the described the regional differences as particularly “telling.”
In a note to clients, Jean pointed to the more-robust sales registered in Quebec, Ontario, Manitoba and British Columbia, while declines were seen in the energy-rich provinces of Alberta and Saskatchewan.
Rangasamy said the rise in retail sales likely reflects yet another impact of low global oil prices.
“Lower pump prices are basically leaving more cash in peoples’ wallets and they’re actually spending it, and we saw that in November,” he said.
“I think that’s going to continue to be a story in 2015.”
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Note to readers: This is a corrected story. An earlier version incorrectly stated the drop in gasoline prices.