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Canadas Rate Of Inflation Has Slowed More Than Expected

Blog by Nick Swinburne | December 21st, 2010

According to a report released on Tuesday, Canada’s annual rate of inflation rose less than had been expected in November- with prices dragging back on items like energy and food.

From a year earlier, consumer prices rose 2%- down from 2.4% in October. This October figure was the largest seen since October 2008.

Nationally, consumer prices increased in all provinces in November, but at a slower pace than in October, year-over-year. Ontario was home to the largest increase in consumer prices and Alberta the smallest.

The core inflation rate settled in at 1.4% in November, - which indicates the slowest rate since March 2008. The core rate was 1.8% in October.

 It is important to note that, in these calculations, the core index excludes eight of the Consumer Price Index's most volatile components (fruit, fruit preparations and nuts; vegetables and vegetable preparations; mortgage interest cost; natural gas; heating oil and other fuels; gasoline; inter-city transportation; and tobacco products and smokers' supplies) as well as the effects of changes in indirect taxes on the remaining components.

This was contrary to economist’s predictions, who felt that overall annual inflation rate of 2.2% and a core rate of 1.6% in November.

Taking seasonal adjustments into account, the monthly core index posted no change from October to November, following a 0.3% increase the previous month.

Of note, the mortgage interest cost index, which is a measurement of change in the interest portion of payments on outstanding mortgage debt, declined 2.7% after falling 3.0% in October.

Energy prices increased 6.7% in November from a year prior, following a 9.1% annual rate the previous month. Gasoline prices were up 7.2% but still below 8.8% annual rate in October.

Electricity costs rose 5.9% year-over-year in November from 8.1% the prior month.

Food prices were up 1.5% in November, compared to a 2.2% rise in October. Prices for clothing and footwear dropped by 3.2% from a 0.1% decline in October.

What does this mean overall?  With inflation slowing at a comfortable pace, it is unlikely that the Bank of Canada will be forced to hike interest rates- as it seems that inflation is under control.  Borrowing money will still be an option for many Canadians.
There is confidence that October was an anomaly in terms of price increases—and that things have settled back to manageable levels.