Annual inflation rises to 2.4 per cent thanks to higher costs for gas, airline tickets

BUSINESS

Annual inflation rises to 2.4 per cent thanks to higher costs for gas, airline tickets

Andy Blatchford The Canadian Press
Published Friday, November 23, 2018 8:38AM EST Last Updated Friday, November 23, 2018 12:42PM EST

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OTTAWA -- The country's annual inflation rate picked up its pace last month to hit 2.4 per cent in an advance mostly fuelled by temporary factors like higher gasoline prices and steeper airfares, compared to a year ago, .

The federal agency's October inflation number marked an increase from 2.2 per cent in September and pushed the reading a little farther away from the Bank of Canada's ideal, two per cent target.

But analysts noted Friday that the slightly stronger inflation was likely to lose some of its momentum as the short-term factors fade and, especially, as the data start to show the effects of the recent, sharp decline in oil prices.

For now, experts like RBC senior economist Nathan Janzen expect the Bank of Canada to stay in a holding pattern at its next interest-rate decision, scheduled for Dec. 5.

With the economy running at full tilt, the central bank is on a rate-hiking path to prevent inflation from climbing too high. Market watchers are predicting governor Stephen Poloz to wait until January before his next rate increase.

However, the timing of future rate hikes could change if the oil-price slump deepens.

"If we have something really unexpected happen on oil prices -- like a dramatic (decrease) again -- it will start affecting the expectations for the pace of rate hikes from the Bank of Canada going forward," Janzen said in an interview.

TD senior economist James Marple wrote in a research note that the falling oil prices -- and the widening spread on Canadian oil benchmarks -- will be of particular importance for Poloz. Marple said the price declines will likely to lead to a drop in oil production and income losses in energy-producing regions.

"The impact is not negligible and will slow the pace of Canadian economic growth over the next two quarters," he wrote.

On its own, however, the inflation report Friday was unlikely to nudge the Bank of Canada in either direction on its next rate decision, several economists said.

The main forces behind the higher inflation were year-over-year price increases of 12 per cent at the pump, 9.4 per cent for airline tickets and a seven per cent rise in mortgage interest costs, Statistics Canada said. Experts, including Poloz, have said stronger gas prices and higher airfares are expected to be short-lived.

The downward pressure last month was led by price declines of 7.2 per cent for video equipment, four per cent for telephone services and 3.9 per cent for traveller accommodation, compared to a year earlier.

Consumer prices were higher last month in all provinces compared to October 2017, but Alberta was the only one to show a slower pace of inflation. A year earlier Alberta's inflation rate was three per cent, while last month the pace was 2.8 per cent.

In Ontario, Statistics Canada said energy prices slid 2.4 per cent on a month-to-month basis after the provincial government got rid of its carbon cap and trade program, which had been introduced last January.

The average of the agency's three core inflation readings, which omit more-volatile items like gas prices, edged slightly higher to two per cent last month to hit the Bank of Canada's ideal, two per cent bull's-eye. The average core, or underlying, measure was 1.93 per cent in September, 2.03 per cent in August and 1.97 per cent in July.

The central bank pays close attention to core inflation ahead of its interest-rate decisions -- and it can raise its trend-setting rate as a way to keep inflation from rising too high.

In a separate report Friday, Statistics Canada said retail sales for September moved up 0.2 per cent compared with August. Month-to-month retail trade was essentially unchanged in August and saw an increase of 0.2 per cent in July.

The September increase brought retail trade to $50.9 billion for the month.

The main contributor behind the increase were higher sales, of 0.9 per cent, at food and beverage stores. Supermarkets saw sales rise 1.7 per cent, which more than made up for a 1.7 per cent decline in beer, wine and liquor stores.

Sales also rose at general merchandise stores by 1.2 per cent, while motor vehicle and parts dealers saw an increase of 0.5 per cent.

Here's what happened in the provinces (previous month in brackets):

Newfoundland and Labrador: 2.1 per cent (1.4)
Prince Edward Island: 2.5 (1.7)
Nova Scotia: 2.9 (1.7)
New Brunswick: 2.8 (2.0)
Quebec: 1.7 (1.7)
Ontario: 2.5 (2.2)
Manitoba: 2.7 (2.4)
Saskatchewan: 2.4 (1.8)
Alberta: 2.8 (3.0)
British Columbia: 3.0 (2.5)

The agency also released rates for major cities, but cautioned that figures may have fluctuated widely because they are based on small statistical samples (previous month in brackets):