Winnipeg Free Press - PRINT EDITION

Inflation trend continues as rate here highest in nearly two years

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MANITOBA'S inflation rate hit its highest level in nearly two years in July, fuelled in part by higher gasoline prices and a one-percentage-point hike in the provincial sales tax.

Statistics Canada said Friday Manitoba's annual inflation rate climbed to three per cent last month from 2.7 per cent in June.

An agency analyst said the last time Manitoba's annual rate was three per cent or higher was November 2011, when it was 3.1 per cent.

The July rate was more than double Canada's annual inflation rate of 1.3 per cent. It was also the highest inflation rate in the country, with Prince Edward Island a distant second at 2.3 per cent and British Columbia at the bottom with an enviable zero per cent inflation rate.

The July showing is a continuation of a dubious trend that has seen Manitoba at or near the top of Canada's inflation-rate pile for much of 2013, thanks in part to a series of increases last year in a number of provincial taxes and fees.

They included increasing the provincial tax on cigarettes, boosting annual passenger-vehicle-registration fees by $35, and extending the PST to include a number of previously exempt items such as home and mortgage insurance.

The provincial government threw more fuel on the fire this year when it boosted the PST to eight per cent from seven per cent. That increase took effect on July 1.

Statistics Canada cited the PST hike as one of the reasons for the latest spike in the cost of living here. Other notable contributors were a 9.2 per cent increase over the past year in the cost of cigarettes, an 8.6 per cent increase in gasoline prices, a seven per cent increase in the cost of telephone services and a 6.7 per cent rise in the cost of electricity.

Nationally, the slight uptick in Canada's annual inflation rate in July -- it was 1.2 per cent in June -- was a softer reading than expected and was interpreted as further evidence of a weak economy.

The Canadian dollar, which has been trending lower all week as the U.S. currency strengthened, slid about one-third of a cent shortly after the Statistics Canada report.

The loonie's slide has been partly the result of expectations that U.S. interest rates are set to begin rising before the end of this year, attracting money managers to U.S. investments offering a better rate of return.

The Bank of Canada, on the other hand, isn't expected to start raising its key interest rates until inflation begins to rise significantly, most likely as a result of a stronger economy.

"July's subdued inflation figures are consistent with an economy growing below potential, which will only reinforce the Bank of Canada's reluctance to raise rates anytime soon," Capital Economics chief e conomist David Madani said from Toronto.

"With growth expected to remain sluggish this year and next, it will be a long time before capacity pressures threaten to push inflation above the bank's one-to-three per cent target range for inflation."

Analysts had predicted th e July inflation rate would rise by 0.2 per cent following increases of 0.5 in June and 0.3 in May, mostly due to a run-up in gas prices since last spring. But the consensus of economists is inflation will now likely flatten out at slightly above one per cent for the next few months.

Bank of Montreal chief economist Doug Porter noted there was little evidence of inflation pressure anywhere on the horizon.

-- Murray McNeill, with files from The Canadian Press


Republished from the Winnipeg Free Press print edition August 24, 2013 B6

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