Canada’s lagging inflation rate – one of the main reasons the Bank of Canada has waited to hike interest rates – showed little improvement in Statistics Canada’s latest report.
The annual inflation rate fell to 1.1 per cent in February from a 1.5 per cent increase in January, Stats Can reported today. On a month-to-month basis, prices rose 0.8 per cent from January to February.
Canadians Paying More for Food and Shelter
Gasoline and clothing prices declined in February 2014 compared to February 2013, while costs of food and shelter increased.
The slowed rate is neither good nor bad; economists had predicted the rate would fall more drastically than it did and despite the decline, the rate remains — just barely — within the Bank of Canada’s target range.
Back in January, Bank of Canada governor Stephen Poloz said his main concern was inflation — specifically, its failure to reach the ideal two per cent target. The rate has been below two per cent for close to two years now.
The Pros of Weaker Inflation
What does the slight decline mean for consumers? For one, the Bank of Canada is unlikely to cut interest rates anytime soon, continuing its three-year freeze. It can also spell good news for purchasing.
“Last year, very low inflation let Canadians buy more goods and services, as wages outpaced slim price gains,” explains Avery Shenfeld, chief economist at CIBC.
But, Shenfeld says, a predicted stoked inflation in the coming months could have Canadians feeling the negative effects — including an erosion of their purchasing power.
“Inflation is expected to begin heating up this spring, and without a matching acceleration in incomes, or a faster increase in debt, consumers will be unable to grow the volumes of goods purchased as quickly,” Shenfeld says.
“The result is that more of the growth in total retail spending will be accounted for by price hikes, with slower growth in the volume sold by retailers after stripping out inflation.”