– Canada’s headline Consumer Price Index (CPI) rose 0.2% in March 2013, which was slightly slower than forecasts for a 0.3% rise.
– On a year-over-year basis, the inflation rate eased to 1.0% from 1.2%.
– Bank of Canada’s core measure rose 0.2% in March, which was in line with consensus expectations and stood 1.4% higher than a year earlier.
The unadjusted all-items Canadian CPI index rose 0.2% in March 2013 and brought the annual inflation rate down to 1.0% from 1.2% in February. On a seasonally adjusted basis, consumer prices rose 0.1%. The Bank of Canada’s core measure posted an expected 0.2% gain in March on an unadjusted basis with the seasonally adjusted index also up 0.2%. Relative to a year earlier, the Bank’s core rate held at 1.4%.
In March, prices for clothing and footwear, appliances, and travel tours posted gains. These increases were accompanied by a very small 0.2% rise in gasoline prices compared to the 8.4% surge reported in February. Declines were registered for the prices of passenger vehicles, traveller accommodation, and fresh fruit and vegetables. Relative to a year earlier, gasoline prices were 0.3% lower with mortgage interest costs and air transportation costs down 4.0% and 3.7%, respectively. Clothing prices, despite recording a 4.0% gain in February and a 4.3% jump in March, stood just 0.5% higher than the same period in 2012 as the gains in February and March were followed by three months of decline. Food prices edged down by 0.4% in March and tempered the pace of increase to 1.8% in the year-over-year rate from 1.9%.
The core measure, which excludes the prices of the eight most volatile components of the CPI, also posted a 0.2% increase due to rising clothing and footwear, and travel services prices. A reprieve in the prices of passenger autos, which fell 1.5% in the month, limited the annual increases to 0.8% from 2.4% in February. In the first quarter of 2013, the headline rate averaged 0.9%, and the Core rate averaged 1.3%, therein matching the Bank of Canada’s forecasts that were released earlier this week.
Inflation in Canada is well contained with both the headline and core rate holding near the lower end of the Bank’s 1% to 3% target range in the first quarter of 2013. The Bank of Canada, in its statement earlier this week, forecasted that both the total and core rates would increase gradually and only hit the 2% target in mid-2015. The Bank attributed the recent low levels of inflation to special factors and the increase in excess capacity following the slow economic growth that occurred in the second half of 2012. Recent data, including both today’s wholesale trade report and the earlier reported 2.5% jump in the volume of manufacturing sales, point to the economy’s growth rate accelerating in early 2013 with RBC forecasting a 1.9% annualized increase in the first quarter, which would be slightly faster than the Bank of Canada’s 1.5% projection. Both forecasts, however, are consistent with the economy growing at a sub-potential pace and as such will do little to mop up excess capacity. With that said, the economy is expected to build momentum during 2013 and run at rates that are sufficient enough to reduce the amount of spare capacity in the second half of 2013. Given the low starting point for the inflation rates in early 2013, inflation will only approach the 2% target by late 2014 thereby resulting in the Bank holding the overnight rate at 1.0% in 2013 and the first half of 2014; after which, reacceleration in both the pace of growth and price pressures, is likely to prompt the Bank of Canada to begin to reduce policy stimulus via higher interest rates.
In a separate report, wholesale trade was flat in February 2013, was weaker than market forecasts for a 0.3% gain, and followed a 0.5% rise in January. Motor vehicles sales and miscellaneous sales rose in February. These gains were offset by lower food, household goods, and machinery and equipment sales. Building materials and supplies sales were little changed in the month. On a volumes basis, wholesale sales were also flat; however, the earlier report showing a stronger than expected rise in manufacturing activity in the month still pointed to real GDP growth of 0.2% in February real GDP, therein matching January’s gain. Wholesale inventories rose 0.6% in February although the inventory-to-sales ratio held steady at 1.26.
RBC