Inflation rate dips, but core CPI soars

CTVNEWS

Annual inflation dips but core prices rise, surprisingly

CTV.ca News Staff Published Friday, March 19, 2010 3:35PM EDT Last Updated Saturday, May 19, 2012 1:13AM EDT

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While Canada's annual inflation rate fell to 1.6 per cent in February from 1.9 per cent in January, core inflation rose to 2.1 per cent -- the first time it has crept over the Bank of Canada's two per cent target in more than a year.

Economists had expected core inflation, which excludes the prices of volatile items such as energy and fresh fruit and vegetables, to drop in February to about 1.7 per cent. Core inflation is considered the key gauge of underlying prices that the Bank of Canada uses to judge whether there is an inflation problem in the country.

The rising core inflation rate will surely influence the Bank of Canada, which is widely expected to start raising interest rates modestly in July.

The Canadian dollar rose sharply Friday after Statistics Canada released the data at 7 a.m. ET., as markets gambled that the new data will compel the central bank to begin boosting interest rates before the U.S. Federal Reserve and other major central banks.

Ahead of the release of the CPI numbers, many speculated that the loonie and the U.S. dollar could reach parity by the end of the day Friday. If that happens, it would be the first time the two currencies have been at par since July 2008.

While the annual inflation rate was down slightly from its January rate, there were worrying rises in gasoline, food, car insurance, autos.

Consumers paid 3.5 per cent more for vehicles and 7.9 per cent more for car insurance in February compared to a year earlier. Statistics Canada noted that while car makers continued to offer rebates and incentives, it was to a lesser extent than they did at the same period a year ago.

Also higher were food prices and personal care items. Dairy prices rose, as did restaurant prices. Prices for personal care increased 3.2 per cent, while prices for medical products rose 1.9 per cent.

Prices for hotel accommodation rose a whopping 16.0 per cent in February 鈥� mostly because of the effect of the Winter Olympics. British Columbia alone, which hosted the Games, saw a 64.1 per cent spike for hotel accommodation.

Gas prices rose for a fourth consecutive month. Prices at the pump were 15.3 per cent higher this past February than they were in February 2009.

Overall, energy prices rose 4.0 per cent between February 2009 and February 2010, following an 8.2 per cent increase in the 12 months to January.

On a month-to-month basis, overall prices were 0.4 per cent higher in February than they were in January, and core inflation advanced 0.7 per cent.

Five of the eight components that go into the inflation index rose in February over January, including food, household operations, furniture, alcohol and tobacco, education and reading, clothing and footwear, and recreation.

Annual inflation slowed in all provinces but British Columbia, which was positively impacted by its role as host of the Olympic Winter Games.

Here's what happened in the provinces and territories. (Previous month in brackets):