Canadian Consumer Price Index, June 2010 Results

Date: July 23, 2010

Canadian Consumer Price Index, June 2010 Results

Source: Statistics Canada

Link to Release: http://www.statcan.gc.ca/daily-quotidien/100723/dq100723a-eng.htm

Summary: The Consumer Price Index (CPI) – Canada’s measure of inflation – rose one per cent annually in June, down from the 1.4 per cent growth rate reported in May. This slowdown was mostly driven by a 2.9 per cent decline in gas prices, with clothing and foot-ware also declining (down 1.9 per cent). The Bank of Canada core CPI, which removes volatile items like gasoline and some foods from its aggregation, rose 1.7 per cent. Ontario experienced the highest provincial rate of increase in the country, with prices climbing 1.6 per cent on price increases for vehicles and vehicle insurance.

Analysis: The consumer price index is the key indicator the Bank of Canada uses in determining the target for its policy interest rate (the Overnight Lending Rate). Over the long-term, the Bank would like to see the CPI grow at two per cent annually. While the rate of CPI growth has been below two per cent for the better part of the last year, the Bank of Canada has raised the Overnight Rate target twice over the past two months. The argument is that economic recovery is well at hand and as growth continues rates must rise to slow consumer spending to ensure that prices for consumer goods and services do not rise at an unsustainable pace. With this said, the Bank has downgraded its forecast for economic growth in 2010 and 2011 along with its outlook for inflation. This suggests that the frequency of interest rate hikes could be less than originally expected when the Bank began raising its rate target in June.

Source: Toronto Real Estate Board

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