Date: February 18, 2011
Canadian Consumer Price Index, January 2011 Results
Source: Statistics Canada
Link to Release: http://www.statcan.gc.ca/daily-quotidien/110125/dq110125a-eng.htm
Summary: In January, the Canadian Consumer Price Index (CPI), which measures price growth (inflation) for consumer goods and services, increased by 2.3 per cent compared to January 2010 following a 2.4 per cent rise in December. A nine per cent increase in energy costs, and more particularly a 13 per cent rise in gasoline prices, was the key driver of price growth. The Bank of Canada’s Core CPI, which strips out volatile items like gasoline and some food items, rose by a lesser 1.4 per cent.
Analysis: The Bank of Canada wants to see the CPI growing at two per cent per year over the long term. The Bank uses its Target for the Overnight Lending rate as its policy lever in achieving its goal for inflation. If consumer spending drops, during a recession for example, the Bank of Canada can lower its policy rate to promote spending and sustained price growth. If consumer spending is strong and the Bank fears that consumer prices could start to grow too quickly, the Bank can raise interest rates to slow spending down. Right now there are limits as to how much the Bank can raise rates. Despite strong increases in energy prices, overall growth in consumer prices was in line with Bank of Canada expectations in January. At the same time economic output remains below potential in Canada and the value of the Canadian dollar remains a concern for exports. With this in mind, it is difficult to make the argument for much in the way of rate increases in 2011.