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Inflation Rate Drops to 2.2 Per Cent in February As Gasoline Prices Ease

Posted on: Thursday, 16 March 2006, 18:00 CST

By SANDRA CORDON

OTTAWA (CP) - Easing prices for gasoline and less expensive fresh produce helped hold the annual inflation rate increase to 2.2 per cent in February, Statistics Canada said Thursday.

That's a slower pace than the 2.8 per cent rate jump reported in January and was less than analysts expected.

Gasoline at the pump was still more expensive for motorists in February than it was a year earlier and natural gas prices also jumped on an annualized basis, raising the cost of heating homes and offices across the country.

But the pace of gas price increases eased last month, actually falling by 6.8 per cent compared with January.

However, filling up the gas tank cost 7.4 per cent more in February than it did during the same period a year earlier.

Also adding to inflation last month was more expensive natural gas, which shot up by 17.1 per cent on average compared with February 2005.

The increase in natural gas prices ranged from a modest 4.6 per cent rise in Alberta to a whopping 22.7 per cent annualized jump in Ontario. That reflected differing transportation costs and impact of regulatory rate approvals as well as rebate programs.

But it seems none of those rising energy costs have yet worked their way into the core measure of inflation. That can happen, if, for example, truckers tack their rising fuel costs onto the price of shipping everything from fruit and vegetables to auto parts, machinery and computers.

The core inflation rate - which excludes many volatile food and energy prices - held steady at 1.7 per cent in February, unchanged from January.

The core rate is most closely tracked by the Bank of Canada which likes to see inflation rest at about two per cent.

"Today's report reinforces the view that last year's energy price spike simply was not passed onto other prices," said Doug Porter, deputy chief economist with BMO Nesbitt Burns.

"There is nothing here to suggest that the (central) bank will feel the need to change their more dovish stance."

After raising its key interest rate at five consecutive opportunities to its current level of 3.75 per cent, the central bank signalled earlier this month that it may be almost finished this credit tightening cycle.

Central bankers will likely nudge up borrowing costs one last time by a quarter-point at their next opportunity April 25, added Marc Levesque, chief Canadian strategist with TD Securities (TSX:TD).

"The odds are still tilted towards one last rate hike at (the Bank of Canada's) next fixed announcement date," he said.

"Obviously, it is going to depend on the (economic) data, but I think the data is pointing towards a final rate hike in April before they decide to lay down their arms."

Although core inflation remains muted, the trend suggests price pressures are edging higher at a bit quicker pace than the central bank expected, said Levesque.

Despite some forecasts for another inflation rate increase, a skeptical Canadian dollar opened 0.30 of a cent lower after Thursday's inflation report.

However, by the close of trading on currency markets Thursday, it had bounced back up by 0.12 of a cent to close at 86.74 cents US.

Inflation was also running a bit slower in the United States last month, compared with January's consumer price index.

Annual inflation averaged 3.6 per cent in February compared with a four per cent rate reported in January, the U.S. Labour Department said.

Besides higher energy prices in Canada last month, compared with one year earlier, higher homeowner replacement costs and a rising price to buy or lease autos also added to inflation.

Those factors were somewhat offset by cheaper insurance premiums for vehicles, less expensive women's clothing and cheaper computer gear.

The cost of women's clothing fell by 4.1 per cent last month, compared with one year earlier.

On a monthly basis, fresh vegetables were 6.8 per cent less expensive than in January while fresh fruit was 3.8 per cent cheaper.

The stronger loonie has helped reduce the cost of many imports, which in turn works to hold down inflation, said Levesque.

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Here's what happened in the provinces and territories. (Previous month in brackets.) -Newfoundland 2.1 (2.6)

-Prince Edward Island 3.8 (3.6)

-Nova Scotia 2.4 (3.1)

-New Brunswick 2.6 (3.1)

-Quebec 2.3 (2.7)

-Ontario 2.0 (3.0)

-Manitoba 1.9 (2.2)

-Saskatchewan 1.9 (2.2)

-Alberta 3.3 (4.1)

-British Columbia 1.6 (1.6)

-Whitehorse, Yukon 2.6 (3.1)

-Yellowknife, N.W.T. 2.4 (2.6)

-Iqaluit, Nunavut 2.0 (1.5)

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Statistics Canada also released rates for major cities but cautioned that figures may fluctuate widely because they are based on small statistical samples. (Previous month in brackets.)

-St. John's, N.L., 1.9 (2.4)

-Charlottetown-Summerside, 3.7 (3.4)

-Halifax, 2.3 (2.8)

-Saint John, N.B. 2.7 (3.1)

-Quebec, 2.4 (2.7)

-Montreal, 2.4 (2.7)

-Ottawa, 1.9 (3.0)

-Toronto, 2.0 (2.8)

-Thunder Bay, Ont., 1.7 (2.7)

-Winnipeg, 1.8 (2.2)

-Regina, 2.0 (2.1)

-Saskatoon, 2.0 (2.3)

-Edmonton, 3.2 (3.6)

-Calgary, 3.2 (4.4)

-Vancouver, 1.4 (1.4)

-Victoria, 1.7 (1.9)

Source: Canadian Press

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