Statistics Canada reports pace of inflation ticked higher in February

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Statistics Canada's offices at Tunny's Pasture in Ottawa are shown on Friday, March 8, 2019. THE CANADIAN PRESS/Justin Tang

OTTAWA — The annual pace of inflation edged higher in February as gains in most spending categories offset lower gasoline prices, Statistics Canada said Friday.

The agency reported the consumer price index in February climbed 1.5 per cent compared with a year ago. The move compared with a year-over-over increase of 1.4 per cent in January.

Economists had expected a reading of 1.4 per cent for February.

Josh Nye, senior economist at the Royal Bank, said the slow pace of inflation will mean the Bank of Canada will likely remain patient when it comes to raising interest rates.

“With inflation remaining below two per cent now we think that’s going to mean a pause from the Bank of Canada,” Nye said.

“So, households won’t be seeing the same increase in borrowing costs in 2019 that they did in 2018. Still though, they are going to be making higher debt payments than they have in years past when interest rates were even lower, so still a bit of a headwind for consumer spending.”

Helping push costs higher was a 8.1 per cent increase in mortgage interest costs and a 14.3 per cent rise compared with a year ago in the cost of fresh vegetables. The cost of passenger vehicle insurance premiums also rose 6.3 per cent.

The cost of gasoline was down 11.9 per cent compared with the same month last year as overall energy prices slipped 5.7 per cent.

However, Statistics Canada said tighter oil supplies and the temporary closure of several refineries for seasonal maintenance helped boost gasoline prices 1.9 per cent compared with January, the first month-over-month increase in gasoline since July 2018.

Excluding gasoline, the annual pace of inflation held steady at 2.1 per cent, the same as January.

The report also said the average of the Bank of Canada’s three core inflation readings, which omit more-volatile items like gas, edged down to 1.8 per cent compared with a reading of 1.9 per cent in January.

The central bank, which aims to keep inflation between one and three per cent, sets its benchmark interest rate target as a way to manage the pace of inflation. The Bank of Canada held its key rate target at 1.75 per cent at its rate announcement earlier this month when it also raised concerns about the strength of economic growth to start the year.

“The main message for the Bank of Canada is that with core inflation holding steady just below the two per cent target and the broader economy struggling for any growth in the opening quarter, rates are in lock-down mode for the foreseeable future — not unlike the Fed,” said Doug Porter, chief economist at the Bank of Montreal.

In a separate report, Statistics Canada reported Friday that retail sales fell 0.3 per cent to $50.1 billion in January, the third consecutive move lower as falling sales at motor vehicle and parts dealers weighed on the results.

Analysts had estimated a month-over-month increase of 0.4 per cent, according to Thomson Reuters Eikon.

“Not only did retail sales stumble out of the gate, we also received revisions pointing to less strength than originally reported to close out last year,” said Brian DePratto, senior economist at TD Bank.

“The culprit again seems to be elevated borrowing costs, with rate sensitive sectors such as auto dealers and furniture stores down on the month.”

Sales at motor vehicle and parts dealers fell 1.5 per cent in January due to a 2.4 per cent drop in sales at new car dealers and a 2.7 per cent drop at used car dealers. Excluding the subsector, retail sales increased 0.1 per cent.

Retail sales in volume terms were essentially unchanged in January.

 

Craig Wong, The Canadian Press

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