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Canada's inflation rate jumps to 3.1 per cent


Canwest News Service

Published: 1 hour ago


OTTAWA - The annual rate of inflation in Canada jumped to 3.1 per cent in June, the biggest rise in almost three year years, fuelled by soaring gasoline prices, Statistics Canada said Wednesday.


Most economists had expected an overall inflation rate last month of 2.9 per cent from a year early, compared with a year-on-year increase of 2.2 per cent in May.


"Gasoline prices increased 26.9 per cent between June 2007 and June 2008, significantly higher than the 15 per cent advance posted in May," the federal agency said.


"June's increase was the largest since the 34.7 per cent gain reported for September 2005, when hurricanes Katrina and Rita disrupted the oil market," it said. "June's increase reflected both recent increases in pump prices, as well as the fact that gasoline prices had been on the decline in June 2007."


On a monthly basis, inflation rose 0.7 per cent in June from May.


"In addition to gasoline prices, mortgage interest cost, bakery products and air transportation also exerted strong upward pressure on the consumer price index in June," Statistics Canada said.


Prince Edward Island and Alberta posted the biggest gains in consumer prices, rises 4.7 per cent and 4.4 per cent, respectively.


Meanwhile, the core rate - which strips out volatile items, such as energy and food, and is used by the Bank of Canada to gauge inflation - rose by 1.5 per cent in June, the same rate as the previous month.


On Tuesday, Statistics Canada reported that retail sales rose by a less than expected 0.4 per cent in May, with virtually all of the increase due to higher prices, especially for gasoline.


However, Canadian consumers - thanks to the strong Canadian dollar - have not been as hard hit by rising prices for food and fuel. As well, pump prices have fluctuated over the past few months from the $1.20 range upwards to nearly $1.50 a litre, driving down consumption.


The Bank of Canada's target for inflation is between one and three per cent, although it expects the rate to peak at 4.3 per cent early in 2009. The central bank has held its key lending rate steady at three per cent for the past two months after a series of reductions in an effort to spur spending amid an economic slowdown.


However, the bank has signalled it is now balancing the need to encourage growth without fuelling inflation.


"The sting of the steep pick-up in headline inflation is lessened by the fact that the Bank of Canada was already so public in calling for an eventual peak of more than four per cent by the turn of the year," said BMO Capital Markets economist Douglas Porter.


"A further correction in energy prices (on top of the $20 drop in crude oil in the past two weeks) would go a long way to further dampening concerns about lofty headline inflation readings," he said.


"With core holding steady at 1.5 per cent in June, right around where the bank looks for it to average in Q3, there's really not much to chew on here from a monetary policy stance."


The Canadian dollar trading around 99 cents US following the inflation report, little changed from its Tuesday close of 99.16 cents US.


Percentage change (May to June / June 2007 to June 2008):


All-items +0.7 / +3.1


Food +1 / +2.8


Shelter +0.6 /+4.7


Household operations and furnishings 0.0 / +1.3


Clothing and footwear -0.5 / -0.6


Transportation +1.8 / +5.5


Health and personal care +0.1 / +0.7


Recreation, education and reading 0.0 / +0.4


Alcoholic beverages and tobacco products +0.2 / +1.6


Goods +1.1 / +2.5


Services +0.3 / +3.7


All-items excluding food and energy 0.0 / +1.2


Energy +4.4 / +18


Source: Statistics Canada


Percentage change (May to June / June 2007 to June 2008):


Newfoundland and Labrador +0.8 / +3.1


Prince Edward Island +0.5 / +4.7


Nova Scotia +0.6 / +4.2


New Brunswick +0.5 / +2.1


Quebec +0.4 / +3.1


Ontario +0.5 / +2.8


Manitoba +0.8 / +2.4


Saskatchewan +0.7 / +3.4


Alberta +1.5 / +4.4


British Columbia +0.7 / +3


Whitehorse +0.9 / +4.5


Yellowknife +0.8 / +4.5


Iqaluit +0.6 / +2.3


Source: Statistics Canada



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