Canada's inflation rate falls to 2.2 per cent in January, helped by GST cut

Julian Beltrame, THE CANADIAN PRESS
OTTAWA - Canada's annual inflation rate slid to 2.2 per cent in January, from 2.4 per cent in December, as consumers continued to benefit from the strong dollar and saw returns from a single percentage-point drop in the federal sales tax, the GST.

Statistics Canada said Tuesday the inflation rate is now the lowest since last August.

Meanwhile, core inflation - an index that Bank of Canada also uses to monitor underlying inflationary pressures in the country - declined for the seventh straight month to 1.4 per cent, from 1.5 per cent in December.

For the fifth straight month, gasoline prices and, to a lesser extent, mortgage interest costs were the key drivers of inflationary pressure.

Gas-pump prices jumped by 20.9 per cent on an annual basis in January, while heating oil and other fuels soared 24.7 per cent.

If energy were excluded from the calculations, inflation would have been only 1.3 per cent in January on an annual basis.

Mortgage interest costs rose 7.6 per cent on an annual basis and home prices rose 4.5 per cent.

Overall, the prices for services rose 3.3 per cent in January over last year, slightly lower than the annual rate of 3.5 per cent recorded in December.

But many other items saw price drops as a result of a combination of seasonal factors, the cut in the goods and services tax that went into effect in January and the continuing import-price benefit of the high Canadian dollar.

On a month-to-month basis, vehicles for purchase and lease were 4.9 per cent cheaper than in December, computer equipment prices crashed 16.7 per cent, women's clothing dropped 4.5 per cent, vacation tour packages slipped 10.3 per cent, air transportation fell 4.6 per cent and the cost of men's clothing dropped by 3.4 per cent.

"Substantial decreases (in vehicle prices) have been observed in the past three months, owing to the combined impact of the reduction in the GST and discounts by manufacturers on new modes," the agency said.

"This continuation of incentives came at a time when the Canadian dollar compared favourably to its U.S. counterpart."

The agency said a rough estimate of the GST effect will be to lower prices by about 0.6 per cent if the entire amount is passed on to consumers, although the deflationary impact may be less if businesses raise their profit margins or had already reduced prices in anticipation of the GST reduction.

Slowing inflationary pressure is also being felt in the hot economies of Western Canada, the agency said.

Consumer prices rose 3.6 per cent in Alberta last month on an annual basis, down from 4.1 per cent in December. In British Columbia, inflation was just 0.8 per cent, the slowest rate of growth in six years.

The agency 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., 2.2 (2.5)
-Charlottetown-Summerside, 2.5 (2.9)
-Halifax, 2.9 (3.1)
-Saint John, N.B., 2.3 (2.7)
-Quebec City, 1.9 (2.2)
-Montreal, 1.9 (2.2)
-Ottawa, 1.8 (2.0)
-Toronto, 2.3 (2.4)
-Thunder Bay, Ont., 1.6 (1.4)
-Winnipeg, 1.6 (1.9)
-Regina, 2.7 (3.1)
-Saskatoon, 4.3 (4.9)
-Edmonton, 4.0 (4.5)
-Calgary, 3.4 (3.7)
-Vancouver, 1.1 (1.3)
-Victoria, 0.3 (0.6)

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

-Newfoundland and Labrador, 2.1 (2.3)
-Prince Edward Island, 2.4 (2.8)
-Nova Scotia, 3.1 (3.1)
-New Brunswick, 2.3 (2.6)
-Quebec, 2.0 (2.2)
-Ontario, 2.1 (2.1)
-Manitoba, 1.6 (2.0)
-Saskatchewan, 3.2 (3.7)
-Alberta, 3.6 (4.1)
-British Columbia, 0.8 (1.2)
-Whitehorse, Yukon, 3.2 (4.0)
-Yellowknife, N.W.T., 2.2 (3.2)
-Iqaluit, Nunavut, 1.7 (2.8)

© The Canadian Press, 2008