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This article was published 27/3/2013 (1345 days ago), so information in it may no longer be current.
OTTAWA -- Consumer prices in Canada jumped a surprisingly strong 1.2 per cent in February as a big spike in gasoline helped fuel the biggest month-to-month inflation since January 1991, when Ottawa introduced the GST.
The one-month increase lifted the Canadian annual inflation rate 0.7 per cent, also to 1.2 per cent, reversing a trend that reduced annual inflation to 0.5 per cent in January, the lowest in more than three years.
Economists had expected inflation to start edging up, particularly as gasoline prices had risen, but their best estimate was for a year-to-year increase of 0.8 per cent and a month-to-month increase of 0.7 per cent.
Despite the one-month inflation shock from Statistics Canada, analysts said Canadians had little to worry about. The roller-coaster movement in inflation was most likely due to temporary factors on both the upside and downside, they said.
"It was a surprise, but it was predicated on some temporary factors that are likely to ease as we go forward into the next month or two, so I'm kind of inclined to look through it," said Derek Holt, vice-president of economics with Scotia Capital. Holt said the steep increase in gasoline prices from January to February -- 8.4 per cent -- is not being repeated in March.
BMO's Doug Porter said the February result likely shows there was an end to deep discounting associated with the Christmas shopping season.
But he noted the higher inflation rate, while not good news for consumers, is still well shy of the Bank of Canada's two per cent target and likely ends speculation the central bank may lower interest rates to stimulate the economy.
A prolonged period of below-trend inflation is an indicator of soft domestic demand, which at its worst, could weaken the economy by encouraging consumers to delay purchases in expectation of lower future prices. The central bank would likely be reluctant to hike rates to compensate, however, fearing Canadians would borrow more and increase their debt load.
"There was some talk of the Bank of Canada cutting rates because of the risk of deflation, but this has wiped that away," Porter said.
The surprising February report does not alter analysts' expectation that inflation is a spent force in Canada in the longer term.
"With economic growth expected to remain below the economy's potential, we expect disinflationary pressures to intensify in the coming months," said David Madani of Capital Economics.
The consensus view of the economy is growth will be limited to 1.6 per cent this year, the slowest pace of expansion since the recovery began in July 2009. The view by Capital Economics is even tamer at 1.2 per cent.
-- The Canadian Press