Surge in fresh fruit and vegetable prices help push annual inflation up to 1.6 per cent

BUSINESS

Rising fruit, vegetable costs push inflation rate up

Andy Blatchford The Canadian Press
Published Friday, January 22, 2016 8:36AM EST Last Updated Friday, January 22, 2016 10:36PM EST

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OTTAWA -- Fuelled by climbing prices for fresh fruits and vegetables, the pace of Canada's annual inflation rate accelerated last month to 1.6 per cent, Statistics Canada said Friday.

Inflation grew at its fastest pace in December since late 2014. Last month's number also followed a 1.4 per cent year-over-year increase in November, the agency's latest consumer price index found.

The figure came out as the economy deals with the effects of the steep slide in commodity and oil prices, which have also helped drag down Canada's exchange rate. The lower loonie is expected to drive up costs for imported goods.

The report said prices for fresh fruit increased 13.2 per cent last month compared to a year earlier, while fresh vegetables rose 13.3 per cent.

The price of lettuce surged 21.8 per cent.

Overall, consumers spent 3.7 per cent more on food last month than the previous year.

On top of higher produce prices, Canadians were also paying considerably more for home and mortgage insurance, automobiles and electricity compared to a year earlier, the report said.

The agency said lower prices for gasoline, natural gas and fuel oil applied downward pressure on inflation. Gasoline prices were down 4.8 per cent compared to December 2014, while natural gas decreased 12.9 per cent and fuel oil dropped by 16.8 per cent.

But the slipping price of energy slowed somewhat, which allowed overall inflation to creep up, said Dawn Desjardins, deputy chief economist for RBC.

"We all knew that there was going to be this huge weight on that headline rate because of the energy and now we're seeing some relief from that," Desjardins said.

"It's kind of following the script, if you will, of what forecasters were looking for."

To help explain the inflation-cooling effect, some analysts also pointed to the sharp monthly decline in the price of clothing and footwear, which fell 5.2 per cent from November to December.

But moving forward, National Bank senior economist Matthieu Arseneau predicts shoppers will continue to face higher prices for imported goods in many categories.

"Despite weak energy prices, we don't expect Canadian consumers to get some respite because the dive in the currency should be a significant offset," Arseneau wrote in a note to clients.

By region, Statistics Canada found that consumer prices increased in every province last month compared to the year before, with British Columbia seeing the largest gain.

The core inflation rate, which excludes some volatile items such as gasoline, was up 1.9 per cent last month, slipping below the two per cent mark for the first time since July 2014. The core rate is followed closely by the Bank of Canada.

Statistics Canada also released its year-end review for 2015, which showed the country's annual average increase in inflation was 1.1 per cent.

Core inflation had an annual average increase of 2.2 per cent last year, reaching its highest level in a year-end review since 2003.

Statistics Canada also released data Friday that contained promising numbers for the state of the economy: retail sales were up 1.7 per cent in November compared to the previous month.

The increase came during a month that featured Black Friday promotions and a boost in sales at new car dealerships. They both helped push the total retail sales figure up to $44.3 billion.

By comparison, retail sales only rose 0.1 per cent in October and contracted by 0.3 per cent in September.

"We've been looking at an economy that's kind of been limping along through September and October," Desjardins said before pointing to other positive economic numbers that have been released for November, such as manufacturing sales and wholesale trade.

"I think it's very encouraging that we saw such an increase in activity."

By province/territory