Canada's Inflation Rate Reaches 1.4 Percent

Annual inflation rate rose to 1.4 percent in February, reversing a recent trend toward lower costs for most items consumed by Canadians.

OTTAWA (CP) -- Canada's annual inflation rate rose slightly last month to 1.4 percent, reversing a recent trend toward lower costs for most items consumed by Canadians.

The 0.3 percentage point increase from January's 1.1 percent rate resulted mostly from higher prices at food stores and from slightly higher gasoline prices charged than in the previous month.

On a month-to-month basis, overall prices rose 0.7 percent in February from what they had been in January.

It was the first time in five months that Canada's inflation rate has not fallen and the first time in two months that no province reported overall falling prices.

But the reversal is expected to be temporary as the recession and a retreat from last year's rapid runup in the world price of oil -- which briefly hit US$147 a barrel last summer -- start exerting downward pressure on the rate over the next several months.

The Bank of Canada has forecast that the overall inflation rate will actually dip into negative territory during the second and third quarters of this year.

That scenario may have been mildly affected by February's number, said Douglas Porter of BMO Capital Markets, saying a contraction in prices may now be limited to a couple of months.

"I think there's just a little more underlying pressure on inflation and it's coming partly from the steady rebound in gasoline prices we've seen since the start of the year and partly from the impact of the lower Canadian dollar," he said.

Porter said the lower loonie is especially being reflected in food costs, since a significant portion of what Canadians eat is imported, especially during the winter months.

Labour economist Erin Weir of the United Steelworkers welcomed the slight uptick in inflation as a sign that deflation is diminishing as a concern.

But he cautioned that the Canadian economy remains in need of stimulus and urged Bank of Canada governor Mark Carney to continue with his monetary easing policies.

"The Bank of Canada was right to raise the possibility of credit and quantitative easing and should also consider targeting a zero per cent interest rate," he said.

The U.S. central bank moved for the first time into quantitative easing Wednesday -- in essence printing money -- by announcing it would buy up US$300 billion in government treasury bills.

Porter said the Canadian central bank is unlikely to go as far when it makes its announcement on the issue on April 23, but said it could initiate modest measures such as purchasing commercial paper to increase business credit.

The big danger, said Porter, is that central banks print too much money and stoke inflation.

Although February's inflation increase was slightly higher than economists had expected, the uptick was moderate and not a total surprise given that U.S. inflation also rose slightly during the month after declining for some time.

Leading the charge was food prices, which have been rising for almost a year.

The cost of food prices at grocery stores rose 8.9 percent in February, but particularly pronounced was the 25.8 percent spike in fresh vegetables, 9.7 percent increase in baked goods and cereal and a 6.1 per cent rise in meat prices.

The inflation rate in Canada would already be close to zero if food was taken out of the calculation, Statistics Canada said.

Shelter costs due to higher mortgage costs also rose in February by three per cent, although that was lower than the 3.3 percent year-over-year rise the previous month.

But gasoline prices remain the major drag on inflation in Canada.

Although the cost of filling up rose 5.6 percent last month from January, gas prices were still 19.7 percent lower than they were a year ago and continue to apply downward price pressure on transportation costs in general.

Also lower in February was the cost purchasing and leasing a passenger vehicle, down 6.4 per cent from last year, clothing, footwear, household appliances and home entertainment equipment.

The Bank of Canada core inflation rate, which excludes energy and some food costs, remained 1.9 percent, near the two-per-cent desired target.

Regionally, prices tended to increase most in the prairie provinces last month and least in the Atlantic provinces. Inflation ranged from 2.6 percent in Saskatchewan to a meagre 0.3 percent in New Brunswick.

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